04 Oct Filing for Divorce Before or After Year-End? Financial and Tax Implications for Texas Spouses
When a divorce is on the horizon, the date your decree is finalized can affect how you file taxes, divide assets, and plan financially for the year ahead. In Texas, understanding how timing interacts with tax rules can help you make informed decisions. This guide explains the key considerations around filing status, bonuses, and retirement accounts so you can plan strategically before year-end.
How Your Marital Status Affects Taxes
The IRS looks at your marital status on December 31 to determine your filing status for the entire tax year.
- If you are still legally married on December 31, you must file as either Married Filing Jointly or Married Filing Separately.
- If your divorce is final by December 31, the IRS considers you unmarried for that year so that you can file as Single or, if you meet specific IRS rules, Head of Household.
To qualify for Head of Household, you must meet specific IRS requirements. This usually includes paying more than half the cost of keeping up your home and having a qualifying person, such as a dependent child, live with you for more than half the year. Married individuals who live apart may also qualify under “considered unmarried” rules if they meet additional criteria. It’s best to confirm eligibility with a tax professional before assuming you qualify.
Bonuses and Year-End Income
Year-end bonuses can complicate things. In Texas, whether a bonus is considered community or separate property depends on when the right to that bonus was earned, not when it is paid.
For example, if your spouse earns a bonus for work performed during the marriage but receives it after the divorce, it may still be considered community property. Filing for divorce does not create this right—the law does.
To protect assets while the case is pending, your attorney can use temporary orders or rely on county standing orders to make sure neither spouse hides or spends significant funds before division.
Retirement Accounts and QDROs
Retirement accounts are often among the most valuable assets divided in a Texas divorce. The rules for splitting them vary by account type:
- Employer-sponsored plans, such as 401(k) plans, are divided using a Qualified Domestic Relations Order (QDRO), which the plan administrator approves.
- IRAs, on the other hand, are not subject to QDRO division. They are typically divided according to the divorce decree or a custody transfer form.
There is no strict IRS year-end deadline for submitting a QDRO, but starting the process early can help avoid delays in transferring funds or receiving distributions.
Married Filing Jointly vs. Separately
Some couples choose to file jointly for the year even if they are separated, especially if it results in a lower combined tax bill. Others prefer to file separately to keep their tax liabilities distinct. Filing separately does not change your status for the following calendar year—it only affects how you file and allocate liability for the current tax year.
Before deciding whether to finalize your divorce before or after year-end, it’s wise to run side-by-side projections with a CPA. Comparing scenarios can reveal whether delaying or accelerating the divorce could benefit both spouses financially.
Final Thoughts
The timing of your divorce can impact taxes, bonuses, and the division of retirement accounts. Every situation is unique, so it’s essential to consider your entire financial picture, consult with your attorney, and seek the advice of a tax professional before making final decisions.
For couples in Denton and Wise Counties, our team works closely with financial experts and tax professionals to help you make informed choices and protect your future.
The foregoing is not to be considered tax advice. Be sure to contact a CPA or tax expert regarding the facts and circumstances of your situation as they relate to taxes and income.