High-Asset Divorce May Trigger IRS Audit

 Posted on September 25, 2014 in High Asset Divorce

For many people, going through a high-asset divorce can be a very emotional and frustrating time. They often cannot imagine dealing with anything that could be similar, or even worse, than the divorce process. However, there is an all too common occurrence many high-asset divorce litigants find themselves in—an audit by the Internal Revenue Service (IRS).

The IRS maintains one of the largest databanks in this country. The databank is not connected to any Internet server due to the classified information. But the agency is very much aware when someone gets married (tax returns must be filed either under married filing separately or married filing jointly) and when someone gets divorced (tax returns are filed either single or head of household).

When couples divorce, they are required to disclose all financial assets in order for the court to determine an equitable division of the marital estate. Many high-asset divorces require the services of a forensic accountant because it is all too common for one spouse to attempt to hide property, income, and other financial assets from the other spouse. The evidence the forensic accountant discovers is then used by a judge to determine that division. The judge is also required by law to report the evidence to the IRS, who will then order a tax audit.

Normally, the IRS can take up to three years from the time it receives a judge's report to issue an audit request. There are some circumstances, however, where the agency is allowed a longer period of time. Any report that reveals a 25 percent or more discrepancy extends the statute of limitations to six years. If the report indicates fraud, the statute of limitation is indefinite, thus leaving the door open for the IRS to issue an audit at any time.

There is a very real possibility that because the spouses were married during the years the IRS will be auditing, both spouses will be audited. There are options for the "innocent spouse" who had no idea about the assets the other spouse was attempting to hide. These options include innocent spouse relief, separation of liability, and equitable relief.

If you are considering a divorce will there will be high asset or complex property litigation, and suspect your spouse is hiding assets, make sure to hire an aggressive Williamson County complex divorce attorney to begin planning and strategizing to ensure you receive all that you are entitled to in your divorce settlement.