Divorce and mortgage deduction
A divorce has an impact on the fiscal situation between parties. In this article we would like to address the most common aspects and mistakes, followed by an applicable court case.
The mortgage deduction is for the house that is your main residence. As long as partners are regarded tax partners, among partners it can be decided who deducts what. If one partner has income and the other not, obviously the income earning partner deducts the mortgage interest.
End fiscal partnership
A fiscal partnership involves person either being married, or have a partner agreement, own the house together or have children together. To complete the fiscal partnership, both partner needs to be registered at the same address with city hall.
In case of a divorce the fiscal partnership does not end till both of the following criteria have been met: the divorce needs to be submitted with the court and one partner changed his or her address with city hall to another address.
The income tax act provides the possibility from a convenience approach that in the year the fiscal partnership ended due to divorce, both partners can still chose to file the income tax return as if there were tax partners the full year. That enables them to optimize the mortgage deduction, amongst others, as if they are still registered at the same address.
With the court a divorce agreement is filed. Mind you, the Dutch tax office keeps track of these submission, as it has an effect on the income tax return. In this time and age often we see partner waive the right for alimony as they are both income earners. They want to terminate the relation indefinitely, hence no more strings attached. This waiving of alimony does have a consequence you will notice later in this article.
Divorce court case
Paul and Mandy were registered on the same address since August 2015. The house is owned by Paul and Sandra, his former wife. The marriage of Paul and Sandra was terminated on June 4, 2014. Sandra left that house on March 27, 2014. The divorce agreement between Paul and Sandra did not contain an alimony obligation, that was waived by the both of them.
Before we continue the court case you need to know that the condition under which the fiscal partnership between Paul and Sandra ended was met on June 4, 2014. Then the second condition was met. The conditions are: having moved the address from the house and register the divorce in court.
Now we continue. Paul and Sandra did not agree on continuing the fiscal partnership for the entire year of 2014. In the 2014 income tax return Paul who paid the full amount of mortgage interest, made for that amount a deduction. This deduction was denied by the tax office, as he only owned the house for 50% and the option to continue as tax partners in the year of divorce was not chosen.
Paul went to court and claimed the mortgage deduction and should that be denied, he wanted to claim the denied part as an alimony deduction. The court followed the tax office decision, as Paul only owned 50% of the house, he can only deduct 50% of the interest. The alimony deduction request was denied, as partners made clear in the divorce agreement that they waived the right for alimony. This divorce agreement was followed by the court, hence no alimony deduction for 50% of the mortgage interest is possible.
Tax is exciting
We think tax is exciting. A divorce is the end of a marriage and the start of new fiscal implications. If partners see the divorce as the finish of a legal engagement, maybe address the fiscal consequences as well. We have also noticed in divorce cases where one partner is still in denial of the marriage being ended, that a discussion about the fiscal consequences is not possible. Please try to be civil and respectful to each other and end the contract in the best way possible tax wise.