If you’ve come to a point of no return in your marriage, taxes may very well not be top of mind compared to other, more emotionally pressing issues. It’s important to realize, however, that divorce or separation can affect your taxes in many different ways. This is especially true if you owe a lot of taxes already. In this post, we will address use a Q & A format to address issues involving divorce and taxes.
Should you file a joint return with your spouse one more time, even if you are planning on divorce?
If you are not yet divorced, you can choose the status of married filing separate (MFS). With head of household status, you could even use the standard deduction. You and your spouse could end up paying a lot more taxes, however, by filing separately than if you’d filed together.
Many couples do prefer to file jointly in order to minimize tax obligations and maximize deductions. But there are big problems that can result from filing jointly, if it turns out taxes were underpaid. This is because, on a joint return, both parties can be held liable for unpaid taxes.
Is it possible to use a divorce decree to address tax debt issues?
Yes. You can include language in your divorce decree that your ex will take care of various tax liabilities. This may sound better in theory, however, than it may be in practice.
Such a provision in your decree may not work in practice because you cannot control whether your ex complies with it. Moreover, the IRS and other revenue agencies can still go after both divorced parties, regardless of what the decree said.
What about innocent spouse status?
Innocent spouse status is a form of relief from tax liability for spouses and former spouses where the other spouse has committed certain forms of misconduct or wrongdoing. It applies even if a joint return was filed.
Depending on your circumstances, there are actually three closely related but different types of relief that may be available. These are innocent spouse relief, separation of liability and equitable relief.
How is alimony or spousal support treated for tax purposes?
Alimony or spousal support payments are considered income for the ex-spouse who receives them. And they can be deducted by the ex-spouse paying them.
Are women more at risk than men of running into tax issues when divorcing?
Unfortunately, the answer is often yes. Even in a society committed to gender equality, men often control the finances. They may incur tens of thousands of dollars in tax debt without their wives being aware of it.
That is why, in choosing filing status, it’s worth looking closely at MSF status. And if your taxes have already been filed, innocent spouse status may be an option.
If you're experiencing IRS issues as a result of a recent divorce and one of these situations, it's wise to speak with an experienced tax controversy attorney, like those at Robert J. Fedor Esq.
