Dear Uncle Bean:

My husband and I have decided to end our marriage.  We have been married for 7 years and have two small children.  How will this affect my taxes?

Distressed and Disturbed

Dear Distressed and Disturbed:

I am so, so sorry to hear about your situation.  Sometimes soul mates turn into soul duds.  Unfortunately, ending a marriage when kids are involved can be a messy tax situation.  But cheer up, there are things that you can do.

If your marriage has ended at the beginning of a new tax year and you had not ended the marriage in the previous year, you need to file your taxes as you have in the past.  In the income tax world, your marital status is determined as of December 31 of the year being reported.  So even if you ended the relationship in the first week of the New Year, you still need to report your status as married.  If you can, try to file the return in cooperation with your ex.  If this isn’t possible, then file your return alone but expect some adjustments to occur.

Probably the biggest challenge that former couples have is clearly reporting the custody arrangement for the children to the tax authority.  In all cases, the CRA will ask for clarity on the first return filed that shows the marital status change to either separated or divorced.  They will want to see a court order that spells out who have custody and control of the children.  If this is not available, then a letter signed by you and the ex-husband can be used.  The absence of either of these documents will mean that neither parent can claim the costs and deductions related to the children on their returns.  We have seen former couples pay higher taxes for years due to their inability to work with their ex to draft a document explaining the arrangement.

So the solution is simple.  Work with your ex to come to an agreement in writing about how the children will be attended to.  It is also better if one parent always claims the children.  We have seen agreements in place where one parent claims the kids one year, the other claims the kids the next year.  You are better off having one parent as the primary guardian for tax purposes with the other parent receiving better terms in the areas of child support payments or other considerations.  In short, make it simple for the CRA.

Uncle Bean

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