Taxes

Tax and Divorce: 7 Questions to Ask

Tax and divorce.  If you are going through a divorce, there are 7 key tax questions you should ask.


What if all of My Tax Returns Have Not Been Filed?


The divorce court will want you to have tax returns filed and up-to-date. There are two reasons for this: to tie up the loose ends, and to provide the financial information needed for alimony and child support calculations. 

Is it better to files returns jointly or separately? In the case of Married Filing Jointly, both you and your spouse are jointly liable for the tax debt, which is frequently a cause for concern in a divorce setting. With this in mind, it may be better to opt for Married Filing Separately, even if that means you must pay some extra taxes now.  Also, keep in mind that you cannot amend a return to switch from Married Filing Joint to Married Filing Separately.

What if you don’t know if your ex-spouse filed all the tax returns? In this case, you can contact the IRS to get your tax transcripts which will show what, if anything, is missing. Transcripts also provide details of 1099’s and W-2’s, which sometimes go missing during a divorce.


How Will the Tax Responsibilities be Divided?


If you file a joint tax return, both spouses are equally responsible for the taxes.   The IRS will go after either party for unpaid taxes. If the divorce decree says that the husband or wife is responsible for the taxes, that is not binding on the IRS. If one spouse claims that they he or she had no knowledge of the income activities of the other spouse, the objecting spouse may request relief under the Innocent Spouse Rules.



What If I Do Not Trust Previously Filed Tax Returns?


If you do not trust the previous filed tax returns, then you can file amended returns, provided that your spouse agrees.


What If I Do Not Trust Our Current Accountant?

Does your accountant play golf with your ex-spouse? If so, you may want to find a new accountant. Look for someone who is independent and will represent your interests.


What If the Tax Returns Show Substantial Tax Debt and Penalties?

It may be time to start negotiating with the IRS for a resolution. Options include Penalty Abatement, Offer-In-Compromise, Installment Agreement, or Currently Not Collectible Status.   


Can I Sell Marital Property That has a Tax Lien on It?

Yes, the IRS will work with you to discharge or subordinate a lien so that you can sell the property pursuant to a divorce. They would rather you be able to sell the house and pay off some or all of your tax debt, rather than leaving you stuck with both unpaid taxes and an unwanted house.



Are There Any Negotiation Points Related to Taxes That I Should Be Aware of When Dealing with My Spouse?


You or your accountant should prepare a tax projection that shows the after-tax cost of several financial matters relating to your divorce. These are:

1. Alimony, which is no longer taxable to the recipient and no longer deductible to the payee. 
2. Who is Going to Claim the Children?   While children no longer provide dependency exemptions, there are child tax credits and earned income credits which need to be considered.  
3. Head of Household Filing Status – You will want to run a projection that shows the after-tax benefit of this filing status post-divorce.

If you need additional answers to your tax-related questions, please give us a call at 678-235-5460.

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Massey and Company is a boutique CPA firm in located in Atlanta, Georgia serving the needs of small businesses and their owners.