Will I Be Responsible for My Ex-Spouse’s Tax Debts After My Divorce?

 Posted on February 17, 2021 in Complex Divorce

A high net worth divorce will involve a wide variety of financial issues that will need to be addressed, but tax-related matters are one area that can sometimes be overlooked. Those who have complex finances may have tax liabilities, and in many cases, one spouse may be unaware of the debts owed to the IRS. It is important to address these issues during the divorce process, and divorcing spouses should also understand their options if the IRS attempts to collect the taxes owed.

Tax Liabilities and Innocent Spouse Relief

When a married couple files taxes jointly, both parties will be liable for any taxes owed, including in cases where the IRS conducts a tax audit and determines that the parties have tax liabilities due to errors on a joint tax return. Even if a divorce decree or judgment states that one spouse will be solely or primarily responsible for paying tax debts, the IRS can disregard these orders and attempt to collect the amount owed from either or both spouses.

Fortunately, a person may be able to receive innocent spouse relief, and they may be able to avoid being held liable for tax debts incurred by their ex-spouse. This form of relief is available if a joint income tax return understated the amount of taxes that a couple was required to pay. An understatement of taxes may be related to income that was not reported correctly or deductions or credits that were claimed improperly.

To qualify for innocent spouse relief, a person must be able to show that they did not know about the errors on their tax return and could not have reasonably known that their spouse’s understatement of taxes. This type of situation is common in cases where one spouse owns and operates a business, and the other spouse is not involved in the company’s financial affairs. For example, a business owner may claim deductions for certain business expenses, but a tax audit may find that they never actually paid for these expenses. If the other spouse had no knowledge of the business’s expenses, they would not have reasonably known about these errors.

Even if a person does not qualify for innocent spouse relief, they may qualify for separation of liability relief, in which each spouse will be responsible for paying part of the total tax debt. Equitable relief may also be available in cases where it would be unfair to hold a person liable for joint tax debts, including in situations where one spouse was the victim of abuse or financial control by the other spouse.

Contact Our Austin High Asset Divorce Attorneys

You should be able to maintain financial stability after your divorce, but this can be difficult if you are being asked to pay tax debts that were incurred by your ex-spouse. To ensure that these issues are addressed correctly, you will want to work with a divorce attorney who is experienced in handling complex financial matters. At Powers Kerr & Rashidi, PLLC, we will help you negotiate a divorce settlement that will meet your ongoing needs, and if necessary, we will advocate for you during divorce litigation to ensure that your financial interests are protected. To get the legal help you need, contact our Austin, TX divorce lawyers today by calling our office at 512-610-6199.

Sources:

https://www.irs.gov/taxtopics/tc205

https://www.irs.gov/businesses/small-businesses-self-employed/innocent-spouse-relief