Taxes: Year of Divorce

INCOME RECLASSIFICATION AGREEMENTS

If you are contemplating that your divorce will become final in the next calendar year, you and your spouse should consider entering an Income Reclassification Agreement to separate your respective incomes and withholdings commencing January 1.

Publication 113 of the Wisconsin Department of Reveue can help you understand these complicated provisions. Essentially, current tax law provides that each spouse will claim half of the other spouse’s income and withholding prior to the date of divorce. However, if the spouses sign an Income Reclassification Agreement before January 1, they specify that each spouse’s income beginning January 1 remains that spouse’s individual income for income tax purposes.

Entering an Income Reclassification Agreement with your spouse can have multiple benefits. It can significantly simplify preparation of your income tax returns. Depending on other factors, it may eliminate the need for you to disclose your financial circumstances after finalization of the divorce.

But Income Reclassification Agreements are not for everyone. For example, if your income is substantially higher than your spouse’s income, you may benefit from having your spouse claim half of your income prior to finalization of the divorce. You should discuss your unique circumstances with a professional to determine whether an Income Reclassification Agreement is best for you.