Divorce and Taxes--be aware and beware!
San Mateo, CA: Divorce often brings secrets to light when an unsuspecting spouse finds out he/she has as big tax problem.
Q: I am going through a divorce. I am finding out my spouse has been very deceptive in our marriage. Should I be concerned about our tax situation?
A: Absolutely you should be concerned!
Many clients come to me with a common situation. Their soon-to-be ex-spouse "always handled our taxes" without much input from my client. My client starts finding out about manipulation, betrayal, and secrets that started BEFORE the marriage broke apart.
How does this affect my client's tax situation:
Often, married couples file a joint federal tax return each year. This is especially true in the nine community property states. Also, generally, filing a joint return is better from a tax perspective due to phaseouts and disallowances on a married, filing separate tax return.
But, married filing jointly comes with a potential trap. When spouses file a joint return, each is "jointly and severally" liable for what is on that return. That means that EACH spouse can be responsible FOR THE WHOLE AMOUNT of tax due if the other spouse can't or won't pay the government.
Why is this important---let's get back to the deception and betrayal.
- What if your spouse has NOT been filing the tax returns as you thought he/she was doing every year?
- What if there are large balances due on a joint tax return that you know nothing about because your spouse has been hiding that (and the mail) from you?
- What if you think that everything is "on the table" during the divorce process only to find out after the fact that your on the hook for taxes you did not even know about?
- What if your spouse cheated on the tax return and now the IRS is auditing?
- What if your spouse failed to report all the income that should have been on the return?
Do you see where this is going?
One of the first places to look for those hidden horrors in on your IRS transcript. The IRS transcript shows balances due, potential audit flags, whether returns were filed or not, and so on.
My first action when dealing with divorcing clients on the tax side is to pull a full report on both spouses to see what is on the IRS transcript. It is very difficult to hide from a full report showing what the IRS knows.
Once I do an analysis , my client can know they are well-informed with their tax situation while negotiating the divorce process. I often continue monitoring the client's tax return for a few years to ensure that everything is "clean" while the statute of limitation on examination and collections remains active on the "married years."
Beware and be aware when it comes to divorce and taxes---what is hidden from you may come back to leave a nasty bite.
Kevin W. Rego, Esq
Law Office of Kevin Rego
650.933.5222
Disclaimer: The information provided is intended to provide a general overview of the topic presented. It is not intended to be a legal interpretation of your individual tax or legal situation. If there is a conflict between the information provided and any legal authority implementing or interpreting the topic, the legal authority shall prevail. Always seek legal advice from a licensed attorney. This article does not in anyway establish an attorney-client relationship. That relationship can only be accomplished with both parties signing a mutual, written agreement.
