Taxes and Divorce: How to avoid mistakes when filing during a divorce

I sat and thought for a few minutes before writing this blog post on what title to use. After careful deliberation, I determined that there is no way to make the subjects of divorce and taxes any more palatable- even if I were to dress up the title.

If you are reading this blog post, you’re probably considering a divorce, and you also pay taxes. How those subjects relate to one another will focus on today’s blog from the attorneys with the Law Office of Bryan Fagan, PLLC.

Opposites attract in marriage, which typically puts the responsibility for the taxes on one spouse.

We’ve all heard the saying, “Opposites attract,” in the context of dating and relationships. The attributes we find attractive in a potential partner are sometimes the qualities we lack in abundance. Quiet and reserved people can see an outgoing and extraverted person as someone they would like to spend time with and help balance out their introverted tendencies. Likewise, a person who does not focus on detailed work, like taxes, for example, may find a “numbers” person to be quite alluring even on a subconscious level.

With that said, from my experience representing clients in divorce cases, it is usually one spouse who handles the taxes while the other has nothing to do with them. This means that while the nonparticipating spouse has less responsibility and headaches associated with preparing the taxes and filing them on time, their knowledge of any methods undertaken to complete the taxes is zero.

If those methods yielded a partial tax return that was incomplete or incorrect, there would be no way for the other spouse to know.

Filing a joint tax return: What does it mean for families?

A joint income tax return can help families save money in ways that spouses are filing individually would not. While only one spouse may be actively involved in preparing the tax return, both spouses must sign their names to the rescue. This creates a situation where both spouses are equally liable for any mistakes in determining the tax liability for the married couple.

If this sounds like you and your soon-to-be ex-spouse, then take note: if the government determines that additional taxes are owed, then both of you are responsible for that extra tax burden along with penalties and interest. Being granted a divorce does not sever this responsibility for one of you.

In many divorce cases that I have worked on, our client was the spouse who could not access the family financial information. This means that their spouse may have been given an “allowance” every week. Think of what you received from your parents for mowing the lawn or doing the dishes, and then expand on that as an adult.

Some spouses are so controlling that they do not allow their partner to view account information online, deposit or withdraw funds at their bank or even know how much the other earns every year. With this in mind, it doesn’t seem right that both spouses have the same level of responsibility for filling out and submitting a tax return that is free of errors.

Innocent Spouse Relief- Help for a helpless spouse

Suppose you find yourself in a position where your spouse tells you that both of you owe money on previously filed taxes. In that case, you can breathe a sigh of relief if you have no working knowledge of anything associated with the mistakes made. Innocent Spouse Relief is a life preserver created by our federal government that will allow you to avoid liability for taxes, penalties, and interest owed due to errors in tax filings. To meet the requirements of this law and prevent responsibility, you must show:

  1. That you filed jointly with your spouse on the return in the taxable year in which you are seeking relief
  2. That your spouse is the only one responsible for the mistake made on the tax return that led to the additional amounts owed
  3. That you had no reason to know, nor did you have an opportunity to find out, that the amount stated on your tax filings was insufficient or undervalued to what the actual total should have been
  4. With the circumstances and facts being what they are, it would be unfair to hold you accountable for the penalties, interest, and future tax burden that comes with understating your current tax liability.
  5. You must bring a challenge to any attempts to collect money within two years of the first collection opportunity.

For those of you who bury your heads in your hands every April, you can take heart in the fact that the government has shown good judgment in at least one area of operation. While taking advantage of Innocent Spouse Relief does not guarantee you that your liability will be wiped clean, it does present you a chance to move forward unscathed by mistake from a person who is very nearly your ex-spouse. It is wise to become involved in preparing and filing your taxes even as divorce is on the horizon.

The more you become involved, the less likely there is to be a mistake made and the lower the likelihood of needing to take advantage of Innocent Spouse Relief.

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