Untangling yourself from a former spouse in a divorce is never an easy matter. There is property to split, debts to divide and possibly custody issues to resolve. If you previously filed a joint return, you also need to extract yourself from one another’s tax obligations; a process that can be further confused if, as a married couple, the two of you owe back taxes. Divorce proceedings typically determine who is responsible for tax debt.
Tax Debt and Divorce
Although the Internal Revenue Service has means to collect back taxes that aren’t available to other creditors, tax debt is no different from other debts in the eyes of the divorce court. When your attorney calculates your divorce settlement with your spouse’s lawyer, they lump tax debt into the same category as outstanding credit card bills, mortgage balances and other debt. When property and debts are divided between spouses, tax debt is divided between the two spouses as dictated by state law and your divorce settlement.
Community Property Vs. Equitable Distribution
A handful of states – Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin – treat property and debts acquired during a divorce as community property, and property and debts from before the marriage as personal property. In a divorce, community property is typically divided between both parties, while personal property and debt reverts to the spouse that brought it into the marriage. Other states divide property and debt following a divorce equitably between both spouses.
Structuring a Settlement
Depending on the property settlement laws of your state and the finances of your marriage, your attorney will negotiate your tax debt as part of your settlement. As with other debts, one party may choose to assume a larger portion of your tax debt in order to receive a larger share of property when the court divides it. The final determination about the division of responsibility for your back taxes should be outlined in your divorce decree to formalize it and ensure both spouses are bound to responsibility for the agreement.
Last Year's Filing Status
If your divorce wasn’t finalized by Dec. 31, the IRS requires that you file as married for taxes during that year. While filing a joint return often provides the largest returns and best tax treatment for you and your former spouse – and thus leaves more money on the table to be divided in your divorce – you may choose to file separate returns. If your spouse owes back taxes from an individual return or defaulted on federal loans, your refund may be transferred to help pay for those debts. Additionally, if you’re afraid your spouse may fudge his return, you may wish to file separately, as well -- you’re liable for any fraudulent returns your spouse files if you file jointly.
- Nolo: Dividing Property and Debt During Divorce FAQ
- Oak View Law Group: Divorce and Tax Debts
- CNN Money: Recently Split? Avoid Costly Tax Mistakes
Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.