Divorce is challenging enough on its own, but when tax debt is part of the equation, it can complicate the process even further. A lawyer, like a tax lawyer, knows that tax obligations incurred during marriage don’t automatically disappear after divorce, and in many cases, they must be addressed as part of the settlement. Whether you are dealing with unpaid taxes, an audit, or disputes with the IRS, it’s important to understand how tax debt can affect your divorce proceedings.
How Tax Debt Is Addressed In Divorce Agreements
When a couple divorces, their marital assets and liabilities are divided. Tax debt, like other financial obligations, falls under this division. If the debt was accrued jointly, such as through a jointly filed tax return, both spouses may be held liable by the IRS. Divorce agreements can stipulate who will take responsibility for the tax debt, but it’s important to remember that the IRS isn’t bound by these agreements. This means both parties may still be pursued for payment unless the debt is fully resolved.
To avoid future complications, a family law and divorce attorney often recommends addressing tax debt directly during the divorce process. This might involve allocating the debt to one spouse in exchange for other concessions or using marital assets to pay off the debt entirely before finalizing the divorce.
Joint Liability And Innocent Spouse Relief
For couples who filed joint tax returns, the IRS generally holds both parties equally responsible for any tax liabilities. This is known as joint and several liability. Even if your divorce decree states that your ex-spouse is responsible for the debt, the IRS can still pursue you if your former spouse fails to pay.
In some situations, you may qualify for relief from joint liability through the IRS’s Innocent Spouse Relief program. This relief is available when one spouse can demonstrate they were unaware of errors or underreported income on a joint return. A lawyer can attest to the importance of carefully reviewing your financial and legal options when pursuing this type of relief, as the process can be rigorous and time-sensitive.
Tax Implications Of Property Division And Alimony
Beyond existing tax debt, divorce itself can create tax obligations. For example, transferring certain assets as part of a property settlement might have tax consequences. Similarly, alimony payments are treated differently for tax purposes depending on when the divorce agreement was finalized. Alimony payments pursuant to agreements signed before 2019 are deductible for the payer and taxable for the recipient, while agreements signed after 2018 follow different rules under the Tax Cuts and Jobs Act.
Understanding how these factors affect your financial obligations can help you avoid unexpected tax issues in the future.
Get Help During This Difficult Time
Tax debt doesn’t disappear when a marriage ends, and failing to address it during divorce proceedings can lead to ongoing financial challenges. By proactively addressing tax liabilities, reviewing options like Innocent Spouse Relief, and understanding how property division and alimony affect taxes, divorcing spouses can take control of their financial futures.
Divorce is already an emotional and financial transition, but addressing tax debt properly can prevent additional stress and uncertainty down the road. If you’re dealing with significant tax debt, having a team that understands the intersection of divorce and tax law can make a big difference. Our friends at Crepeau Mourges discuss the importance of addressing both legal and tax considerations together to help individuals achieve a fair and manageable outcome.