How choosing annulment over divorce in Texas impacts your taxes

When a couple seeks to end a marriage, divorce is generally the chosen method. However, in some cases, they are able to get an annulment. The requirements for a court to grant an annulment are much more narrow than for a divorce. If you do choose to go that route, there are important tax considerations that you should keep in mind. To the Internal Revenue Service, it makes a big difference whether a couple gets a divorce or annulment.

First, let’s take a look at the requirements under Texas law for having a marriage annulled. Grounds for a “voidable annulment” include those where one or both parties were under the influence of drugs or alcohol or underage when they wed. Other grounds include mental incompetence, duress, fraud and impotence (either physical or mental).

Texas law also has what are called “void annulment” grounds. These include marriages that are prohibited under law, such as being wed to a relative or to more than one person at the same time.

There are other grounds under which you may qualify for one of these annulments. Therefore, if that’s what you are seeking, it’s wise to get legal guidance.

So how does an annulment impact your taxes differently that a divorce? An annulment is essentially saying that the marriage never occurred. Therefore, from the IRS’s perspective, the couple was ineligible to file joint tax returns (assuming they were married long enough to do so).

According to Revenue Ruling 76-255, if a couple is granted an annulment after filing one or more joint returns, they each have to refile separately as single people for the years in question. This could increase their tax burden. It’s possible, however, that it could work to the advantage of one or both of them.

Of course, choosing an annulment over divorce usually involves far more serious issues than tax considerations. Nonetheless, if your marriage is annulled after filing at least one joint return, it may be just as important to seek tax guidance as it is to seek experienced legal guidance.

Source: Accounting Web, “Divorce Versus Annulment: It Makes a Big Difference on Your Tax Return” Julian Block, Feb. 04, 2015