Divorce comes with mental anguish, custodial discussions, moving out, and separation of finances. On top of all that, the last thing you need is to find out that your ex owed back taxes from the time when you were married. After all the trouble you’ve been through, you don’t want to be at loggerheads with the IRS.
So, will you have to pay those back taxes on your ex’s behalf? If you don’t take any action, will you lose your assets, including, your house? Can your ex’s tax liabilities from the period you were married affect you? The short answer is that it depends.
If you’re in the unfortunate situation of getting divorced or if you’ve been recently divorced, these are the questions you need to answer to find out if you are liable for your ex-spouse’s back taxes.
Did you file a joint return for the period in question?
This is the first question you’ve to answer. If the answer is no, then you’re off the hook in almost all situations. If you filed separately, there’s nothing to worry about except for certain cases.
If you filed jointly, then yes, you are liable for their tax debt. This is true even if the income on which the back taxes are owed primarily came from your ex’s earnings. If they do not pay, you are vulnerable to collective action.
Importantly, your divorce settlement doesn’t absolve you of the responsibility. Even if your divorce papers state that your ex is responsible for the tax payments, the IRS can still hold you accountable. The legality of the divorce settlement only binds your ex to the payments. It’s important to note that it does not affect the agency’s ability to make you pay.
Were you aware of the improper filing?
Usually, problems arise from mistakes with income or deductions while filing returns. This leads to tax liabilities that can haunt you later. The agency finds it through their regular audits or through other ways. If you were unaware of the problems, you might be eligible for Innocent Spouse Relief.
To qualify for this relief, you will have to prove that you had no reasonable way of knowing about the problem. You will also have to prove that it would be unfair to hold you responsible for any part of your ex’s tax liability.
Even if you’re able to claim the Innocent Spouse Relief, keep in mind that you would still be liable for portions of the tax debt that does not arise from improper reporting.
There’s another relief option called Separate Liability Relief. This is applicable to those couples who are legally separated or divorced and haven’t been living together for at least a year.
Were there circumstances beyond your control?
The IRS understands that a divorce is a highly-sensitive issue. If there are back taxes involved, the agency knows that the reasons for not paying them could be the same reasons that led to the separation. Therefore, they offer another program called Equitable Relief.
This allows you to free yourself from any liability for a tax debt that goes beyond the improper filing. To claim the relief you have to prove that it would be unfair for you to pay. Usually, these involve situations beyond your control or circumstances where you were a victim.
These include physical, emotional, or mental abuse or physical or mental health problems during the period. You can also claim the relief if you can demonstrate that paying it would lead to severe financial hardship for you.
Did you miss a refund because of the tax debt?
In case you were expecting a tax refund but part or all of it was taken because of your ex’s tax debt, you can apply for Injured Spouse Relief. To claim this, you should have paid your taxes and prove that you have no obligation to pay your ex’s tax debt.
Divorce is messy and if your ex-spouse owed back taxes, then it will get further complicated. You are liable for any back taxes that they owed if you were jointly filing your returns.
But if you can demonstrate that there were circumstances beyond your control or that it was unreasonable to know about them or unfair to hold you accountable for their wrongdoings, then you can claim relief from the agency.