As the end of the year approaches, many divorcing couples wonder: Is it better to finalize before December 31, or wait until after January 1?
It’s an important question — because the timing of your divorce can directly affect your taxes, your filing status, and your financial future.
The IRS looks at your marital status on December 31 to determine how you’ll file your taxes for that year. That means if your divorce is finalized by December 31, you’re considered unmarried for the entire year — even if you were married for eleven and a half months. If your divorce isn’t final until January, you’ll still file as married for that prior tax year.
Let’s look at what that means in real-world terms, and how to decide which timing works best for you.
Advantages of Finalizing Before Year-End
1. You’ll file as single (or head of household): If your divorce is completed before December 31, you’ll typically file your next tax return as Single. If you have a qualifying dependent and meet the IRS rules, you may even qualify for Head of Household status, which offers a higher standard deduction and lower tax rates than filing Single.
2. Clear separation of income and deductions: Ending the marriage before year-end simplifies next year’s return — you’ll report only your own income, deductions, and credits going forward. That can make it easier to plan ahead, budget accurately, and avoid disputes about joint tax filings.
3. Potentially better tax brackets for high earners: In some cases, higher-income individuals pay less overall tax once they move from Married Filing Jointly to Single status, especially if their spouse has little or no income. If you’re the higher earner and your joint income pushed you into a higher bracket, finalizing before year-end could be beneficial.
4. Reducing shared tax liability: When you file jointly, both spouses share responsibility for any taxes owed — even if one person caused the issue. Finalizing your divorce before year-end allows each person to file separately and removes that shared liability for the year ahead.
5. Clean year-end recordkeeping: Finalizing before year-end creates a natural dividing line for financial records. Each spouse starts the new year with their own accounts, income, and tax reporting. For those ready to move forward financially, that clarity can be valuable.
Disadvantages of Finalizing Before Year-End
1. You may lose valuable joint filing benefits: Married couples filing jointly receive a larger standard deduction and often enjoy lower overall tax rates. If one spouse earns significantly less, joint filing can substantially reduce your combined tax bill. Ending marriage before year-end removes that advantage for the current year.
2. Rushing can lead to costly mistakes: Trying to close out a divorce before December 31 can push negotiations and paperwork too quickly. It’s better to take time to value assets correctly, complete Qualified Domestic
Relations Orders (QDROs) for retirement accounts and ensure tax-free property transfers under Section 1041 of the Internal Revenue Code. Rushing can create expensive errors later.
3. Loss of certain credits or deductions: As a single filer, income limits for credits and deductions are often lower than for married couples. You might lose eligibility for the child tax credit, dependent care credit, or certain education credits. This is especially true if you’re the higher earner.
4. Possible impact on health insurance and benefits: If you’re covered under your spouse’s employer-provided plan, finalizing before year-end could trigger an immediate need to secure your own health coverage. Waiting until January could buy you a bit more time for transition and open enrollment opportunities.
5. Joint tax refund issues: If you expect a joint tax refund for the year, finalizing before December 31 may complicate how that refund is divided. It’s important to include clear tax refund language in your marital settlement agreement either way.
Reasons to Wait Until After the New Year
Sometimes, waiting until January is the smarter financial move. If one spouse has a significantly lower income, you could save money by remaining legally married through December 31 and filing a joint return for that year. Those savings might outweigh the benefits of closing divorce early.
Waiting also gives you more time to properly divide complex assets such as businesses, investment portfolios, and retirement accounts — and ensures that your final settlement reflects year-end account balances and updated tax information.
For Florida residents, there’s another layer: homestead exemption rules.
If the marital home is part of your settlement, timing can affect who qualifies for the Florida homestead exemption in the new year. A transfer in January may allow the remaining spouse to preserve the exemption going forward, whereas a transfer before year-end could disrupt it.
Key Questions to Discuss Before Deciding
Before deciding, sit down with your divorce attorney, CPA, and financial planner to review these key questions:
- Will filing as Single or Head of Household increase or decrease your overall taxes?
- Are there deductions or credits you’d lose if your marital status changes before year-end?
- Is there joint tax liability risk if you remain married and file jointly this year?
- Do you expect your income to rise or fall next year?
- Are there time-sensitive issues, like health insurance, alimony, or home transfers, that are affected by timing?
Running a side-by-side tax projection under both scenarios (divorce before December 31 vs. after January 1) is often the best way to make an informed decision.
The Bottom Line
There’s no universal answer to whether it’s better to finalize your divorce before or after the new year — it truly depends on your income, your deductions, and your financial goals.
For some, ending the year with a clean slate and separate tax status brings peace of mind and clarity. For others, waiting until January preserves valuable tax savings and gives time to finalize a stronger, more thoughtful agreement.
A well-timed divorce isn’t about rushing — it’s about planning. Understanding the tax impact now helps ensure you start the next chapter of your life on solid financial footing.
Contact us today to schedule a consultation. Together, we’ll build a clear strategy that protects your interests and sets you up for financial security post-divorce. Don’t leave your future to chance—let’s get started.
Contact Orlando Divorce Planning now to schedule your consultation and take control of your financial future.
Disclaimer: Orlando Divorce Planning is not a law firm or accounting firm. We do not provide legal or tax advice. This content is for informational purposes only. You should consult with a qualified attorney or tax professional for advice specific to your situation.