When parties divorce, their Property Settlement Agreement must address issues related to taxes. This includes Agreements on dependency deductions, how to file and when the parties no longer will file a joint tax return. There are tax implications to the distribution of retirement investments and savings, alimony, deferred pension benefits and other matters which should be addressed.
If during the marriage, a joint tax return has been filed, both parties are responsible, even if one spouse was the earner and the other spouse only signed the tax return. We strongly advise that any spouse signing a tax return review it. Even if one spouse “agrees” to be responsible for the problems arising out of the tax return, this is not adequate. The responsibility of each spouse to pay tax due is to the Internal Revenue Service.
If there is money due on a previously filed tax return, each spouse can be individually liable for the entire debt consisting of the tax due, interest and penalties. Thus, the housewife can be fully liable for the tax due from her husband’s income.
One can try to qualify for Innocent Spouse Relief or Allocating Liability or for Equitable Relief with the Internal Revenue Service.
These, however, are very high burdens to meet. If you know or should have known of unreported or other inconsistencies in reporting or benefitted from this income in some way, it is not critical that you know the exact amount or exactly where it came from to be responsible for the taxes.
In relation to the divorce, once a party signs a joint tax return when still married, they each still have individual liability for taxes due after the divorce. Similarly, if one’s name appears on a mortgage, that person is liable to the lender even if the spouse agrees to protect the non-earning spouse. The contract is with the lender and also the creditor. The same applies to joint credit cards. Each person is separately liable to the credit card company for the debt. A Property Settlement Statement should seek to address these issues.
Tanya N. Helfand, Esq. concentrates in Family Law, she is a Certified Matrimonial Attorney and mediator. The firm welcomes your questions and inquiries at [email protected]. Everything is confidential. This article is not legal advice. Please consult an attorney