I am trying to research the correct way to file taxes during a pending divorce. I can file the federal as married filing jointly. I moved to WI in December 2007 and lived here the whole year 2008, so my principle state of residence is WI. My soon to be ex lived in our townhouse in MN (that I paid 100% of expenses for) so her state of residence is MN. What is the correct way to file taxes?

Married filing separately.

If you and your ex are able to work together, you are most likely better off filing as Married Filing Jointly as opposed to Married Filing Separately. You do not have to live in the same state to do so. However, it does require that you each sign the tax return - so if your relationship is such that this is not practical then your other option is Married Filing Separately. Also, depending on your particular situation, it MAY be possible to file as Head of Household - this is possible if you have been living apart for at least 6 months (which it sounds ike you have) and you have at least one qualifying dependent. Post back if you would like more details, or read Pub 501 from the IRS:

http://www.irs.gov/pub/irs-pdf/p501.pdf