Divorce can be challenging for many reasons, but one major concern is figuring out who pays the taxes when a marriage ends. In New York, the rules can be confusing, especially if you and your spouse filed joint tax returns or your divorce is pending for long periods of time.
If you need assistance deciphering any tax issues relating to divorce or any other concerns, do not hesitate to contact our New York tax lawyers at Thorgood Law Firm.
What Happens if We Filed a Joint Tax Return?
When you file a joint tax return, you are usually considered jointly and severally liable for any taxes owed. You may also have joint criminal exposure for charges emanating from the filed returns. That means both spouses are responsible for the entire tax debt, even if one spouse earned all or most of the income. In New York, this rule does not change just because you are getting divorced.
If your spouse refuses to pay their share, you can still be forced to pay the full bill. After you pay, you might have the right to ask your spouse for reimbursement. From the government’s viewpoint, the tax debt belongs to both of you. This can be hard to accept if you did not realize your spouse was underreporting income or failing to pay taxes. Still, the government can collect, in full, from whomever is easier to find or more likely to pay.
Let’s say you and your spouse owe $10,000 in taxes for a joint return. If your spouse disappears or refuses to pay, the IRS or New York State can come after you for the full $10,000. If you end up paying more than half, you could try to get that money back from your spouse in court or through a reimbursement claim. However, the fact remains that you might still have to pay the government first, even though you believe it is not your fault.
This rule also applies if you have a divorce settlement saying your spouse agreed to cover the taxes. The IRS does not have to honor that agreement because it was not a party to the divorce or the agreement. The government just cares that there was a joint return, and that makes both people fully responsible.
Does My Divorce Agreement Protect Me from the IRS?
A divorce agreement might say that one spouse will pay the full tax debt. However, that agreement is usually only between the two of you. It does not force the IRS or New York State to release you from liability. If your former spouse fails to pay, the government can still come after you for the taxes because they are not bound by what your marital settlement says. As far as the tax authorities are concerned, if you signed a joint tax return, you are responsible.
That does not mean, however, that your divorce agreement is pointless. It can still help you by giving you a way to seek repayment from your ex-spouse if you end up covering more than your share. For example, if the agreement says your ex must pay all the taxes, but the IRS forces you to pay them instead, you could go back to court to enforce the agreement, or you could sue your ex-spouse for the money you had to pay on their behalf.
What If We Filed Separate Tax Returns?
If you and your spouse filed separate returns, each person will be responsible for their own taxes. That means your tax return belongs to you, and your spouse’s tax return belongs to them. You are not automatically on the hook for any taxes your spouse owes on their separate return. This can be a safer route if you suspect your spouse might lie about income or if you simply want to avoid sharing tax liabilities.
However, in some marriages, people choose to file jointly because it often leads to a lower overall tax bill or certain tax benefits. If you filed jointly for years but now want to file separately, you may need to talk to a tax professional. Switching from filing jointly to separately can affect things like deductions, credits, and future refunds. Also, if you already owe taxes from past joint returns, you cannot erase that by suddenly filing separately in the future.
What Is “Innocent Spouse Relief”?
“Innocent spouse relief” is a special program that can help someone who did not know their spouse was doing something wrong on a joint tax return. It applies if one spouse failed to report income, claimed false deductions, or did anything else that caused the joint return to understate the tax bill. If you truly had no idea, and it would be unfair to make you pay the entire debt, you can apply to the IRS for innocent spouse relief.
To qualify, you must prove that you did not know and had no reason to know about the incorrect items on the tax return. You also must show that it would be unjust to hold you responsible. For example, if you signed the returns but your spouse controlled the finances and lied about the income, you might be a good candidate for innocent spouse relief.
However, it is not easy to win innocent spouse relief. The IRS will look at things like how involved you were in the household finances, whether you asked questions about the return, and if you benefited from the extra money your spouse did not report. The IRS may also take into consideration your level of education and presumed sophistication. Even if you do everything correctly, the process can take time, and you might still end up owing some of the taxes. However, it is worth exploring if you feel you have been trapped in an unfair situation.
How Do I Ask for Innocent Spouse Relief?
If you think you qualify for innocent spouse relief, you need to file the proper forms with the IRS. Often, this involves completing Form 8857 (Request for Innocent Spouse Relief) and giving detailed information about what happened. You will need to explain why you did not know about the errors on the return, and you might need to show proof, like bank statements or letters, indicating that your spouse kept you in the dark.
You should do this as soon as you realize there is a problem with the joint tax return. Waiting too long can make it harder to prove your case. Also, there is generally a limit on how many years you have to file for this relief after you learn about the tax debt. If the IRS denies your request, you can appeal or try to meet other conditions, like “Equitable Relief,” but that can be more complicated.
Talking to a tax attorney can help because they know how to organize the facts and present your situation in the best light. At Thorgood Law Firm, we can help you with any extra paperwork or court proceedings if the IRS challenges your request. While innocent spouse relief is not guaranteed, it can give you a fair chance if your spouse’s actions caused a tax debt you truly did not know about.
Can the IRS or New York State Ignore Our Settlement?
Yes. The IRS or the New York State Department of Taxation and Finance does not have to honor a settlement agreement between you and your spouse. They can still pursue whichever spouse filed the joint return if taxes are owed. Your settlement might say, “Spouse A will pay all taxes,” but if Spouse A disappears or refuses to pay, the government can still come after Spouse B.
This is why it is so important to plan carefully. Some couples will try to resolve tax debts before finalizing the divorce to make sure there are no hidden surprises later. Others will include strong language in the settlement that covers what happens if one spouse does not fulfill their promise.
Based on the above, it is prudent to have a New York Tax Attorney review and analyze any proposed divorce agreement, prior to you signing.
While none of these solutions are foolproof against the government, they can at least protect you in your dealings with your ex-spouse. If you have to pay the taxes, you will have a clear path to recover the money.
What Are Some Tips to Avoid Tax Trouble During Divorce?
You cannot guarantee you will avoid all problems, but there are steps you can take:
- Get Copies of All Returns: Gather your tax returns from the last several years. Review them for accuracy.
- Check for Debts: Find out if there are any unpaid tax bills by contacting the IRS or the New York State Department of Taxation and Finance.
- Consider Filing Separately: If you do not trust your spouse’s reporting, you might file separate returns, though this can have other tax consequences.
- Discuss Tax Issues in Your Settlement: Make sure your divorce agreement explains who pays current and future taxes, and how you will handle any audits.
- Look into Innocent Spouse Relief: If your spouse lied or hid income, consider applying for innocent spouse relief if you truly had no idea.
- Speak to a Tax Lawyer: At Thorgood Law Firm, our New York tax attorneys can help you understand your rights and minimize risks.
Taking these precautions can reduce surprises. However, remember that no matter how thorough you are, the IRS can still pursue you for joint debts if you filed jointly. At least by being prepared, you will know your options and have a plan to protect yourself.
Reach Out for a Free Consultation with a New York Tax Lawyer
Remember: You do not have to face tax troubles alone. Whether you need help understanding your options or fighting an unfair tax bill, our NY tax attorneys from Thorgood Law Firm are here to guide you. Contact us for a free consultation, and let us help you find relief from your tax troubles, even during the toughest of times, such as divorce.
We want you to focus on your future, not your past debts. Let us assist you on the path to resolution and peace of mind.
