August 19, 2020
Divorcing your spouse can be a complex undertaking and involves more than simply splitting up jointly owned bank accounts and properties. It also means ensuring that your taxes are completed and filed properly. A number of issues can pop up while completing taxes in the middle of a divorce, some of which may require you to file tax return(s) with your soon to be ex-spouse. In other cases, a change of marital status can result in having to file taxes quite differently than you are used to, leading to the high probability of making a mistake.
Filing Tax Returns Jointly
According to current IRS regulations, two spouses who are in the middle of a divorce, yet not officially divorced at the end of the tax year can file a joint tax return. Even if both individuals are no longer residing in the same location, as long as they are still legally married and no official divorce decree has been approved by the courts, that joint return is valid.
The problem with a joint tax return is the fact that it leaves both spouses responsible for everything listed on it. Any money owed to the IRS is owed by both parties. The divorce process usually determines who is liable for that debt and must pay the IRS said money. This is a common part of a settlement, as the debt ends up in the same category as others, such as credit card balances and other money owed to various parties. Depending on the state of residence, these debts may be looked at differently by the courts, but for the most part, all debts are divided up in the same manner.
One issue with this occurs when the IRS refuses to view the parties as having split the debt up and wants to hold both of them liable for the money owed to them. This is perfectly legal for the IRS to do and may result with one or both spouses creating a payment plan with the IRS in order to clear up the debt before drastic measures are taken.
Another variable is if one spouse is not informed that mistakes have been made on the joint tax return, leaving a larger amount of money due to the IRS than usual, they may invoke the innocent spouse clause, eliminating the debt from their name in the eyes of the IRS.
Filing Tax Returns Post-Divorce
Although spouses who are divorced at the end of the calendar year can file separate tax returns, there are some exceptions to the rule. For example, depending on the state that both individuals reside in, a divorce nisi comes into effect. This declares that the divorce is not officially on record until 90 days have passed. If a couple is divorced on November 1st of a calendar year, but a divorce nisi is in play, they are still considered married in the eyes of the law and must file a joint tax return.
This opens up the door to some potential issues, such as one spouse, the one who took control of the return, possibly making a mistake or inflating their wages or holdings leaving both spouses, even though divorced, liable for the money owed to the IRS. Thankfully, in many cases like this, the spouse who was unaware of the issues with the tax return can invoke the innocent spouse clause.
The Innocent Spouse Clause
Innocent spouse rules may apply when one ex-spouse incorrectly files a tax return with the other’s name on it without that spouse knowing about the money owed to the IRS. For example, if the amounts listed on the form are accidentally inflated or under-reported, triggering money due to the IRS, the spouse who is innocent, the one who is unknowing or has no way to rectify the situation, may not be liable for the tax debt.
In order to qualify for the innocent spouse clause, the spouse in question needs to file a claim with the IRS within two years of submitting the tax return. They also must prove that they had no way of knowing of the error(s) and were not involved in the filing process. Once this is done, the IRS may decide to relieve the spouse of their burden and place the amount owed to them solely on the responsible spouse’s shoulders.
Procedures for Paying Back Taxes
The IRS prefers to create a payment plan for individuals who owe back taxes, regardless of their marital status. The agency looks at the tax return, not necessarily the court divorce records, in order to determine who is liable for paying the tax debt. If the innocent spouse is found not liable for the debt, then the other spouse must immediately pay the IRS or set up a timely payment plan.
If the debt remains unpaid, the IRS or their State Department Revenue may invoke a number of different methods in order to ensure that they collect the money due to them. For example, they can seize property owned by both parties, such as vehicles and houses. Bank accounts (in either or both names), wages, as well as in extreme cases, driver’s licenses, passports, and professional licenses are also eligible for seizure. Before the IRS comes in and seizes the property of either ex-spouse, they will provide both parties with multiple chances to pay in full or have a tax professional start the resolution process.
How to Get Help
Whether you owe money to the IRS along with your spouse or need to invoke the innocent spouse clause, seeking the help of an experienced tax professional is a wise choice. This is also true if you need to submit your first tax return on your own, post-divorce. Owing taxes and filling out an accurate tax return can be a complex endeavor, especially if one spouse routinely took charge of the tax filings while married. Seeking help from an expert tax preparation consultant can ensure you complete the process properly and without error.
In addition, it often takes the expertise of an experienced tax expert to successfully invoke the innocent spouse clause and prove that one individual is not liable for the mistakes on the tax return, and therefore, not responsible for the debts owed to the IRS.
Even when one spouse shoulders the IRS debt in a divorce, it does not necessarily guarantee that the IRS will view the debt responsibility in this manner, leading them to seek repayment from both parties. Getting them to view this differently will typically require the assistance of a tax consulting firm, like Enterprise Consultants Group, who has experience in dealing with tax issues that stem from divorce.
If you have tax-related questions regarding how to handle your tax return filings during a divorce or post-divorce, the tax advisors at the Enterprise Consultants Group can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free consultation to see how we can help you.