Divorce planning: don’t forget potential income tax issues

One of the issues divorcing couples don’t often consider until problems arise is that they may be jointly and severally liable for each other’s income tax debts under federal law. This means that one can become liable for an ex-spouse’s tax liabilities even after divorce, even if it was established in the divorce proceedings that spouses are liable for their own tax debts or that only one spouse is liable.

The problem is similar to what ex-spouses can face with respect to credit card or mortgage debt—creditors do not care what agreements may have been made in divorce, but only who they may legally pursue for payment of the debt. The IRS is no different, and the agency can and will seek the payment of tax debts from ex-spouses, regardless of who specifically owes the money.

Ideally, couples come up with a plan to avoid running into tax problems after divorce. This can be done by filing separate tax returns, but one may still end up being liable for mishaps from previous tax years where one’s tax return had a married filing jointly status.

Fortunately, the IRS does offer the possibility of relief to spouses who had no knowledge of their partner’s failure to report income when holding them accountable would be unfair. Also, equitable relief may be available when income was correctly reported but the tax bill was not paid in full because of the actions of a spouse.

In going through the divorce process, couples should be aware of the tax issues they may run into and should take appropriate precautions. Those who encounter issues with past tax returns can benefit not only from consulting with tax professionals but also with an experienced family law attorney, particularly in cases where tax payments infringe upon their rights as laid out in a divorce decree.

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