If you’re married, you may keep your income tax situation separate from your spouse by electing the Married Filing Separate tax status. However, when filing tax returns in a community property state, like Wisconsin, the phrase “what’s mine is yours and what’s yours is mine” is applied to all marital income earned during the year, even in the year of divorce.

For taxpayers in community property states, in general, each spouse must report half of any community income and all his/her separate income. Each spouse can report half of the income tax withheld from community income.  For example, one spouse earned $100,000 (deemed community income) during the year and the other spouse did not earn income. If the spouses choose to file Married Separate, each spouse will report $50,000 of income.

 In the year of divorce, unless stipulated in the Marital Settlement Agreement or Divorce Decree, community property treatment also applies to the community income earned during the year up until the date of divorce.  Let’s modify the example above to reflect the date of divorce as October 1st.  In this example, the employed spouse earned $8,333 each month, or $75,000 between January and September (pre-divorce) and earned $25,000 between October and December (post-divorce).  The income would be split as follows:  

  • 50% of $75,000 and 100% of $25,000 to the employed spouse (total of $62,500), and 
  • 50% of $75,000 and 0% of $25,000 to the other spouse (total of $37,500).


Items To Consider

  • Generally, filing as a couple is more advantageous as couples receive larger standard deduction and expanded tax brackets.
    • Some federal tax deductions and credits (like the tuition interest deduction and the dependent care credit) are unavailable if married and filing separately.
  • Married couples have a higher income cutoff to be eligible to make Roth IRA contributions as well as tax-deductible IRA contributions.
  • Filing separately may help reduce the income that is used to determine income-based student loan payments.
  • Filing separately may limit the liability for the other spouse’s tax errors.

Check out IRS Publication 555 for an in-depth discussion of community property income, how to file separately if married, and how to request relief from liabilities arising from community property law.