Can a Divorce Decree Protect You from the IRS?

A divorce decree may clearly state who’s responsible for unpaid taxes, but unfortunately, it doesn’t override the law. When you file a tax return jointly with your spouse, you are both liable for the tax due – regardless of what the divorce decree says.

In some cases, innocent spouse relief may be an option to reduce your tax liability. If you don’t qualify for that, you may need to take other steps to avoid a tax lien and protect your assets.

Remember that, whatever your situation, you can always contact the team of tax experts at Timothy S. Hart Law Group, P.C. today. Don’t wait – contact us now.

Key takeaways

• Liability for joint tax debt – Even if your divorce decree states that you are not responsible for your shared tax debt, the IRS can still try to collect from you if the taxes remain unpaid.
• Innocent spouse relief – You may qualify for innocent spouse relief if your ex-spouse made errors on your joint tax return, such as underreporting income, and you weren’t aware of the errors.
• Separation of liability – You may qualify for this type of innocent spouse relief if your former spouse underreported or underpaid taxes.
• Equitable relief – This option applies when it wouldn’t be fair to hold you responsible for the tax debt due to your former spouse.
• Post-divorce taxes – Other changes to be aware of after a divorce are changing your filing status, changing your withholding amount, and claiming a child on only one parent’s tax return.

Who’s Responsible for Back Taxes After a Divorce?

Your divorce decree may state who’s responsible for paying the taxes, but if that person doesn’t pay, the IRS will go after whoever is legally responsible for paying the taxes. Here’s a breakdown of who’s responsible based on when the debt was incurred and the type of return that was filed.

• Tax debt that was incurred prior to the marriage – only the spouse who incurred the tax debt.
• Tax debt from a tax return filed jointly while you were married – both spouses are responsible.
• Tax debt from a return filed as married filing separately – in most states, only the spouse who filed the return is liable for the tax due on that return. However, in community property states, both spouses may be held liable for the tax due on the other spouse’s return.

Tax Debt From Married Filing Jointly Returns

As indicated above, both spouses are liable for the tax debt shown due on a jointly filed return. However, you aren’t equally liable – instead, you are jointly and severally liable. In plain language, that means the IRS can go after both of you or either of you.

Say your former spouse doesn’t have any assets. Then, the IRS will come after your assets. If you’ve gotten remarried, the IRS may even be able to seize some assets that you own jointly with your new spouse – jointly owned checking accounts are certainly at risk.

Unfortunately, if you’re facing that type of collection action, you can’t just call the IRS and say, “The divorce decree says my ex-spouse has to pay.” If you say that, the IRS will remind you that you’re both liable for the tax due under federal law.

However, there are relief options that may be able to help you.

Innocent Spouse Relief After a Divorce

The IRS has an innocent spouse program that’s specifically designed to help people in these types of situations. There are three different ways to apply, and in all cases, you should strongly consider working with a tax professional. They can leverage their knowledge of the tax code and IRS processes to help you get relief.

You can apply for all three of these programs using Form 8857. The IRS will review your information to see which option is the best fit.

Innocent Spouse Relief (Traditional)

If your spouse underreported the tax on your jointly filed return, and you had no reason to know about the understatement, this option may give you relief from any of the additional taxes that were assessed. This may happen because your spouse didn’t report all of their income or because they over-valued assets in a way that reduced their tax liability.

Separation of Liability Relief

For this option, you must be divorced, legally separated, or living apart for at least a year, and your spouse must have understated the tax due on your return. With this type of innocent spouse relief, you are only liable for the taxes related to your income, not the taxes related to your former spouse. The IRS separates the liability.

Equitable Relief

If you don’t qualify for the other two options, you could still qualify for equitable relief. The IRS may agree to equitable relief if holding you responsible for your spouse’s tax liability would be unfair – a lawyer can help you make your case. Equitable relief applies to underpayments, not just understatements. For example, if you filed together and your spouse said they’d mail in a check, but they never did, that’s an underpayment.

The IRS also takes into account whether domestic violence or coercion was involved in your situation.

What to Do If You Receive a Collection Notice for Unpaid Taxes Your Ex Was Supposed to Pay

First, never ignore these notices – it can be tempting to ignore them, especially when you believe that your spouse was supposed to pay the tax bill. But remember, the divorce decree does not supersede federal law.

Review the notice and make sure you understand what’s happening. If it’s a Final Intent to Levy Notice, such as an LT 11 or 1058, you only have 30 days to take action. Talk with a tax professional about what to do, but here are some of the options:

• Appeal with a CDP hearing – if you appeal by the 30-day deadline, the IRS will not move forward with any collection actions, and you can talk with them about applying for innocent spouse relief or making payment arrangements on the tax debt. In the meantime, you can also reach out to your ex to figure out why they aren’t paying.
• Set up payments – you may want to set up an installment agreement and make monthly payments. That can buy you time while you figure out what to do next or how to get your spouse to pay.
• Pay in full and take your ex to court – if you pay in full, you may be able to make a civil claim against your spouse in court. Paying in full will ensure that the IRS doesn’t file a tax lien or seize your assets, but there’s no guarantee that you’ll ever recoup the funds from your spouse.
• Get your account marked as currently not collectible – If you can’t afford to pay anything, you can apply to get your account marked as CNC status. This stops all collection actions against you, but only temporarily until your finances improve.

What If You Ignore the Collection Notices

If you ignore the notices, the IRS will move forward with trying to collect the unpaid tax from you. The IRS has a dedicated process for collections, which may include:

• Filing a federal tax lien against you which can impact your ability to get credit
• Notifying you of their intent to levy your property (seize your assets).
• Seizing your property, such as your wages, bank accounts, or other assets.

The statute of limitations for collections is 10 years, so when that date passes, the IRS can no longer collect. Unfortunately, in most cases, it’s simply not realistic to try to wait out the IRS, but it does happen in some situations. If you’re dealing with old tax debt, reach out to a tax attorney – they will help to ensure that you don’t accidentally extend the collection timeline or make other mistakes that may put your assets in jeopardy.

How Does a Divorce Impact My Taxes?

In addition to dealing with old marital tax debt, getting a divorce has several implications for your taxes. Here’s just some of what you need to consider:

Filing Status

You’ll also have to file under a different status if you get a divorce. The IRS goes by whatever your marital status is on the last day of the year you’re filing for. If you’re living apart, not divorced or legally separated, the IRS will still consider you married when you’re filing your taxes. So, you must file as married filing separately or married filing jointly. There are certain exemptions for spouses who have lived apart for over a year and meet other criteria.

If you are actually divorced, you’ll have to file as single or head of household unless you got remarried in the same year.

Tax Withholding Changes

A divorce usually means you have to adjust how much tax is being withheld from your paychecks. Don’t forget to give your employer this new information so withholding will be accurate. Just ask for a W-4 form and then fill it out based on your current situation.

Support Payments

Alimony or spousal support payments used to be deductible. However, for agreements signed in 2019 and after, these payments aren’t deductible, and you don’t include them in reported income if you’re the receiving spouse. Child support is also not deductible for the person who pays it, and the recipient doesn’t have to report it as income either.

Claiming a Child on Tax Returns

Another important tax implication of divorce is claiming dependents. After a divorce, only one of the former spouses can claim their child on their tax return. Although your divorce decree may state which of you can claim the child, it doesn’t supersede federal law.

The IRS says that the custodial parent should claim the child. However, the custodial parent can release the claim to the non-custodial parent by filing Form 8332. If both parents have equal custody, the parent with the higher adjusted gross income (AGI) should claim the child.

Protect Yourself from the IRS with Tim S. Hart

Going through a divorce is already stressful and emotional. You don’t want to deal with complex or expensive taxes on top of it. If you’re worried you’ll be held responsible for your ex-spouse’s tax debt that they were ordered to pay in your divorce settlement, there are steps you can take to protect your assets and prevent the IRS from coming after you.

The team at the Timothy S. Hart Law Group is ready to review your situation and provide knowledgeable guidance to protect you from IRS collections. Contact us now to schedule a free consultation.

FAQs About Divorce Decrees and Tax Debt

Am I Responsible for My Ex’s Tax Debt After a Divorce?

Yes, if the tax debt was due to a jointly filed return or a separately filed return in a community property state, you are liable – even if your divorce decree states otherwise.

How Does Innocent Spouse Relief Work?

Innocent spouse relief applies in situations where you didn’t know that your spouse understated or underpaid tax, or in situations where it would be unfair to hold you responsible for the tax debt. You apply for all types of relief using a single form, and the IRS decides which option you get. You may be relieved from additional tax due or only held responsible for your portion of the tax due on a jointly filed return.

How Do I Qualify for Equitable Relief After a Divorce?

The IRS may grant equitable relief if you can show that holding you responsible for the debt would be unfair.

Can the IRS Come After Me If My Divorce Decree States I’m Not Responsible?

Yes – regardless of what the divorce decree says, the IRS can come after you for tax liabilities you owe from your marriage. The IRS may use tax liens, wage garnishments, or asset seizures to collect the unpaid taxes from you if you or your former spouse doesn’t pay voluntarily.

Sources:

https://www.irs.gov/individuals/filing-taxes-after-divorce-or-separation

https://www.irs.gov/newsroom/tax-considerations-for-people-who-are-separating-or-divorcing

https://www.irs.gov/individuals/innocent-spouse-relief