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Joint tax filing can rub salt in the wounds of a divorce

Kelli Forbes at her home in Coquitlam. The year after Ms. Forbes divorced her first husband, she was eager to move on, but the wounds of the split were reopened the next spring, when she had to do her taxes for the first time as a single mother.

John Lehmann/The Globe and Mail

The year after Kelli Forbes divorced her first husband, she was eager to move on in life with her children. But the wounds of the split were reopened the next spring, when she had to do her taxes for the first time as a single mother.

She didn't know the difference between a T1 and a T3, so she swallowed her pride and asked for help.

"What I basically did was I went to my dad and said, 'How do I do this?' " the 40-year-old Vancouverite recalls.

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She and her ex-husband had three kids, owned a house and had started a business together, which made her tax filing complicated. After getting through a particularly stressful year while updating with the Canada Revenue Agency, she vowed always to file her returns independently, even if she remarried.

The stress most Canadians feel during tax time is amplified for the recently separated or divorced. As if the dissolution of a marriage weren't hard enough, recently split couples also have to figure out everything from how to divide the child tax benefit to reporting shared assets.

The marital status you list on your tax filing is what it was on Dec. 31 of the tax year. If you've parted ways since then, you'll still file as "married" for the year. That last joint filing can be a nightmare in cases of non-amicable splits.

"There are maybe less than 20 per cent that are willing to work together," says Wendy Olson-Brodeur, a Calgary certified financial planner. "Divorce, of course, is very emotional and can be very ugly."

While she advises clients to leave emotions off the table and think of filing taxes as a business transaction, she sometimes has to shuttle between individuals in separate sessions.

Of course, when children are involved it's impossible to think "business."

"I've seen numerous situations where one parent's getting all of [the child tax benefit]and they share custody with the kids," says Cleo Hamel, a senior tax analyst with H&R Block in Calgary. "I know it's not a lot of money in some cases, but I think it's the principle of the matter. Especially in a non-amicable split, it can be really nasty."

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For those who haven't yet addressed the issue of who claims what in a legal divorce or separation agreement, starting on July 1 the CRA will split the child tax benefit and the GST/HST credit.

And while calling up the tax department to report your changed status may be low on the priority list of the recently separated, Ms. Hamel says there are advantages to being prudent and filling out the CRA's RC65 marital status change form as soon as you split. For example, if you have custody of the children your chances of receiving the GST/HST and child tax benefits increase, so it makes sense to start collecting as soon as possible.

"If you are a struggling single parent now and there's an opportunity that you can get more money from these government benefits, it's definitely important to let the CRA know. You don't want to wait to file your tax return to do that," Ms. Hamel says.

Apart from how you file your taxes, who files them can also stir up tension.

Ms. Olson-Brodeur says it's worth finding someone new to prepare your filing if your ex had a personal relationship with his accountant. And you should certainly do so if his accountant is a family member.

Ms. Forbes, now facing the dissolution of her second marriage, is relieved she never filed jointly with her soon-to-be ex through his accountant, who also handles her husband's business finances.

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"I wouldn't trust them at this point doing my taxes," she says.

Ms. Forbes expects that steering through a separation will be easier her second time around because she's maintained some financial independence. When she and her husband opened a joint savings account, the couple decided that a withdrawal could only be made if both signed off on it.

Some couples whom Ms. Olson-Brodeur has worked with didn't have Ms. Forbes's foresight and are now paying for it.

One of her current clients recently complained that her ex had taken out $300,000 on their shared line of credit and blown it on partying. When the couple divorced, the woman owed half.

If you want to make sure you don't lose savings you've been tucking away in a joint account, she suggests a pre-emptive strike: Either freeze the account, or empty out your half when a split seems imminent.

"I hear so often, 'Oh, he would never do that.' 'Oh, she would never do that.' It's like, please, don't be naive to think it won't happen to you," she says.

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