Co-Author: Gregg Greenstein
How is Stimulus Money Divided Between Divorcing Spouses?
On Thursday, March 11, 2021, President Biden signed a 1.9 trillion coronavirus relief package into law. As part of this package, a one-time stimulus payment will be issued to some Americans. The new law raises many immediate questions for divorced or divorcing spouses.
Currently, there are no federal or Colorado laws saying how the stimulus money is treated in divorce cases. In other words, there aren’t any laws explaining how the stimulus payments should be divided between current and former spouses, with the problem arising when the payment is made to only one party, and the Separation Agreement, Parenting Plan or Permanent Order is silent on the issue.
This article is meant to highlight how divorced and divorcing couples may consider handling the 2021 federal government stimulus payments. This is not intended to and does not cover all aspects of the stimulus program.
Under President Biden’s relief package, individuals earning up to $75,000.00 per year would receive the full $1,4000.00 one-time stimulus payment, and couples making up to $150,000.00 per year qualify for the full $2,800.00 ($1,400.00 per eligible person) one-time stimulus payment. A head-of-household filer earning up to $112,500.00 would receive the full $1,400.00 check. Additional stimulus payments will be issued for dependents. The size of the payments are scaled down for individuals making more than $75,000.00 and married couples earning more than $150,000.00, and the one-time stimulus payment is cut off for individuals making more than $80,000.00 and couples earning more than $160,000.00. An individual filing as head-of-household, who makes more than $120,000.00, would not receive the one-time stimulus payment.
The IRS will use your income on your 2020 tax returns to determine eligibility for the one-time stimulus payment. If you have not filed your 2020 tax return, the IRS will use your 2019 income tax return to determine eligibility. If your 2020 return is filed and/or processed after the IRS sends a stimulus check, but before July 15, 2021 (or September 1 if the April 15 filing deadline is pushed back), the IRS will send a second payment for the difference between what your payment should have been based on your 2020 return and any payment actually sent based on your 2019 return.
In addition to using your tax returns for income information, the IRS will use the information on your most recent tax return to determine where the one-time stimulus payment will be sent for you and your dependents. Thus, the stimulus payment may be direct deposited into one spouse’s account or mailed to one spouse’s address, via paper check or Economic Impact Payment debit card (“EIP card”), creating chaos. Some examples include:
- Example 1: Divorcing spouses (or recently divorced spouses) filed a joint 2019 tax return. A 2020 return has not been filed by either party. The check will be mailed to the address listed on the 2019 return. If neither party resides at the residence, the check will not be received by either party. If only one spouse lives in the residence, the check is only received by one party.
- Example 2: Divorcing spouses (or recently divorced spouses) filed a joint 2019 tax return. Neither party has filed a 2020 tax return. The direct deposit of the one-time stimulus payment will be made to the account used for any refund payments listed on the 2019 return. If the account was closed, there will be issues getting the money. If the account was a joint account, but only one person is now on the account, the other spouse will not have access to the money.
- Example 3: Divorcing spouses (or recently divorced spouses) filed a joint return for 2019. One spouse files a separate tax return for 2020, while the other spouse has not filed for 2020. The spouse who has already filed will receive their check at his/her address. The other spouse will need to file their own 2020 tax return to get their check.
Child Tax Credit
Under prior law, most taxpayers could claim up to $2,000 per child. In a significant change, the new law increases the tax break to $3,000 for every child age 6 to 17 and $3,600 for every child under the age of 6. The question about who claims the child tax credit depends on the terms in a Separation Agreement or Parenting Plan or Permanent Orders. If there is no Separation Agreement, no Parenting Plan or no Permanent Orders addressing the issue, it needs to be addressed by: negotiation and settlement, or filing a Separation Agreement, Parenting Plan or Permanent Orders addressing the issue, or reaching an alternate settlement agreement regarding the issue.
Divorcing spouses or recently divorced spouses may have a Separation Agreement, Parenting Plan or Permanent Order that specifically address stimulus checks. If not, problems may arise on how the one-time stimulus is divided between spouses if only one spouse receives the full amount. For additional information or assistance with this issue, please feel free to contact Gregg Greenstein, Esq. and Brittaney D. McGinnis, Esq.