Divorce is often an emotional and far-reaching event and many things need to be arranged. The income tax is not the first thing you are thinking of, but a divorce could have a major impact on your fiscal situation.
Lawyers and/or mediators are often hired during a divorce, but the tax consequences are sometimes forgotten. It is therefore advisable to seek advice in advance from a tax advisor who can advise you and assist you with preparing your income tax return. This way, you are informed in advance and you avoid questions from the tax authorities.
Last couple of years the Dutch tax Authorities conducted various campaigns because ex-partners often file income tax returns independently of each other and, as a result, mistakes are made. There are also tax law cases showing that filing an income tax return in case of divorce can be quite difficult and that the tax consequences of the divorce settlement are fiscally disadvantageous. We also see this in our practice.
When preparing income tax returns, we only see afterwards what the ex-partners have agreed or not agreed. And if the agreements have not been properly recorded, this can sometimes result in unpleasant tax consequences. For example, if one partner continues to live in the home that is (still) jointly owned.
For example, we had a situation where one partner continued to live in the jointly-owned home and the other left the house, but forgot to deregister from the municipality. In the divorce settlement it was agreed that no alimony would be paid and nothing was mentioned about the payment of the mortgage interest of the jointly owned primary residence. Subsequently, verbal agreements were made and the partner who stayed behind paid 100% of the mortgage interest.
Unfortunately, they did not consult a tax advisor upfront and, when processing the income tax form, it turned out that the mortgage interest paid could not be fully deducted. When completing the income tax return, the actual situation is of importance.
Recording agreements with regard to alimony and the owner-occupied home
When drawing up a divorce settlement, it is important to properly record agreements regarding the owner-occupied home, maintenance, etc. and also to consider the tax consequences.
Ex-partners who do not make agreements on the payment and division of the mortgage interest may be faced with unexpected surprises.
End of fiscal partnership
Your fiscal partnership ends when you file a petition for divorce, for dissolution of registered partnership or for legal separation with the court. In addition, the departing partner must also deregister from the current joint address (at the municipality). As long as you are registered together at the same address, you remain tax partners.
Filing your income tax returns together one last time
It can be beneficial to file your income tax return together for one last time. The (joint) income and deductions can then be divided as favourably as possible. Moreover, it can be prevented that certain deductions are not included or that the Tax Authorities will ask questions because the filed returns do not match.
In addition, it may be wise to record what will be done with the tax amounts to be paid or received.
Mortgage interest deductible?
From the moment of separation, each partner is (only) entitled to deduct the mortgage interest for his/her share. For the departing partner this right still applies for a maximum of 2 years (if the ex-partner continues to live in the house). Moreover, the mortgage interest has to be paid by the departing partner. The other half is not deductible, neither for the partner who continues to live in the house nor for the partner who leaves.
In order to ensure that the mortgage interest does burden the partner who continues to live in the property, it can be stipulated in writing that the remaining partner pays alimony (in an amount equal to the departing partner’s share of the total mortgage interest paid). This amount must actually be paid. In this way, a deduction in the income tax return can be realised through the alimony payments. The alimony, however, is taxed with the other partner. We note that every situation can be different and that it depends on who is paying. Therefore, always discuss this with an advisor first.
Notify the tax authorities of changes immediately
It is important to inform the tax authorities of any changes in your situation. If you receive a provisional assessment or refund, it is a good idea to check it and perhaps have it adjusted. This also applies to any allowances.
Our advice: If you split up, do not only discuss the practical aspects, but also consult a tax advisor about the consequences. This way you avoid unnecessary surprises.
Would you like to be informed about the Dutch income tax consequences and processing your Income tax form? Please feel free to contact AAme Accountants & Tax Advisors for more information. We are pleased to assist you.
C.J. (Cora) van Geest-Reedijk
Fiscal Employee (present: mo.-tu.-th.)
+31 (0)15 820 00 36