Julian Block, author of Tax Tips For Marriage and Divorce has provided me with a few brief tips, which I will be posting over the next week. I reviewed his book last week. It turns out the first one he sent me might be of interest to Kim Kardashian. She was married to New Jersey Nets player Kris Humphries for 72 days in 2011 before seeking divorce. He countered by seeking an annulment.
Divorce Versus Annulment: the Big Tax Difference
Picture a cozy household of three: just Brad Pitt, Angelina Jolie, and the friendly tax man. Fact is, whether Brad, Angelina, Jennifer, Bristol, Levi, Snooki, Kim or anyone else is hooking up, breaking up, or something in between, the odds and ends of their relationships are grist for the IRS mill.
For instance, there’s a difference between a divorce and an annulment. The courts grant a divorce to mark the end of a marriage that was valid when entered into, whereas an annulment is for a marriage that at no time was valid (as when one of the parties was under the age of consent at the time of the marriage).
To a couple interested only in the fastest way to untie the knot, the question may seem to be an unimportant technicality. Those watchful souls at the Internal Revenue Service, however, think that there’s an important difference when Form 1040 time rolls around. According to an IRS ruling, if an annulment is retroactive, the couple was never married. Result: they had no right to file joint returns (Revenue Ruling 76-255).
An example: John and Mary married in 2011, filed jointly for that year, and had their marriage annulled after the filing deadline. Because their marriage was declared null and void from its very inception by the annulment decree, they’re considered to be unmarried at the end of 2011. Consequently, as an unmarried couple, they were ineligible to file jointly. The IRS requires John and Mary to “undo” their joint return by the filing of amended returns as unmarried filers. That can mean they get dunned for additional taxes.
Normally, the IRS doesn’t allow people who file joint returns to change their filing status and switch to separate returns once the filing deadline of April 15 (for most individuals) has passed. Revenue Ruling 76-255 deals with the rare circumstance in which joint filers can switch to separate returns. This ruling involved only a one-year marriage. Nevertheless, the theory would presumably apply regardless of the marriage’s length. On the plus side, refunds may be available to couples whose marriages were annulled and who would have paid reduced taxes as single persons.
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Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as: “a leading tax professional” (New York Times); ”an accomplished writer on taxes” (Wall Street Journal); and “an authority on tax planning” (Financial Planning Magazine).
I’m wondering in the Kardashian case, if community property law might be a factor. If you were ever going to do a reality TV show about tax preparation, Kim and her hoopster might make a good pilot.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on May 19th, 2012