A woman going through a divorce is thinking about dividing the tax debt.
SmartAsset and Yahoo Finance LLC may receive a commission or income by linking to the content below.
Dividing a tax debt in a divorce depends on when the debt was incurred, state laws, and other factors. Liability for back taxes can be shared or assigned to one spouse, often based on whether the debt was incurred before or during the marriage. : However, the IRS rules may not match the divorce court order financial advisor can help clarify tax obligations and prepare you for potential financial implications.
When? division of debt in divorceCourts look at the type of debt and when it was incurred. Debts incurred during the marriage are usually considered equitable, making both spouses liable.
Premarital debts are usually treated as separate, with each spouse responsible for their own obligations.
Tax debt is often treated the same way Whether the debt was incurred jointly or individually and whether it occurred during the marriage are important factors in determining liability.
In community property states, courts can rule that both spouses share responsibility for any tax debt incurred during the marriage.This means that the debt is usually divided equally, regardless of income differences or payments.
In equitable distribution states, the tax debt is divided based on what the court deems to be fair, not necessarily equal. Factors such as each spouse’s financial situation, earning potential, and investments in the household are taken into account This approach is used in all but nine states that follow community property laws.
A divorce settlement may assign a tax liability to one spouse, but the IRS can still hold both spouses jointly liable for the tax liability if they filed jointly during marriage. Even if the divorce decree states otherwise, the IRS can pursue payment from either party.
To reduce this risk, individuals can seek: relief of the innocent spouse From the IRS. This provision relieves a spouse of liability for tax liability if their ex-spouse improperly reported or omitted income on a joint tax return without their knowledge.
To qualify, the petitioning spouse must show that he or she was unaware of the mistakes and that it would be unfair to hold them accountable. The IRS considers factors such as financial involvement, personal interest, and financial circumstances.
To apply, individuals must submit IRS Form 8857 explaining their situation and including supporting documents. The IRS will review the application based on the couple’s financial details and communications during the marriage.
A woman researches tax laws for divorce.
Separation of liability Relief allows joint filers to share responsibility for tax liabilities between themselves and their ex-spouse.
The IRS allocates a portion of the tax liability to each spouse based on their individual contributions and circumstances, offering a way to separate financial responsibility after separation or separation.
Unlike innocent spouse relief, this option is only available to those who are divorced, legally separated or have lived apart from their spouse for at least 12 months.
To apply for relief, individuals must file IRS Form 8857. The IRS will review the application based on factors such as each spouse’s financial contributions and their involvement in the tax reporting process.
Fair relief available to individuals who face unfair tax liabilities due to the actions of their spouse or former spouse, even if they were aware of the wrongdoing. compared to other forms of privilege.
This is different from a division of liability exemption, which divides the tax debt between spouses.Equitable relief applies when it would be unfair to hold one spouse liable.
To qualify, the petitioning spouse must show that holding him or her liable for the tax debt would be unfair under the circumstances. The IRS considers factors such as financial hardship, the petitioning spouse’s current financial situation, and any evidence of abuse or fraud by the other spouse.
To apply for equitable relief, you must file IRS Form 8857. This form will allow you to explain your situation and provide evidence to support your case.
A person comparing community property versus equitable distribution states.
Dividing tax debt during a divorce can be difficult, especially with joint tax returns and IRS rules navigate through these options.
A: financial advisor can help optimize your investments for tax Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisors to determine which one is right for you.If you’re ready to find an advisor to help you achieve your financial goals, start now.
SmartAsset tax refund calculator with updated brackets and rates to see how your income, withholdings, deductions and credits will affect your next return or balance due.
English