If you owe back taxes from a jointly filed return, you are both responsible for them even if you get divorced. Unfortunately, regardless of what your divorce decree says, the IRS can hold you personally responsible for the tax debt. That means if your ex has been ordered to pay and they don’t, the IRS may come after your wages, bank accounts, and assets.
To protect yourself, you need to understand the rules and what to expect. To get personalized guidance now, contact us at Damien’s Law today.
Key takeaways
- Taxes due from a jointly filed return are owed jointly and severally.
- In community property states, taxes due from returns filed separately when you’re married are also owed jointly and severally.
- The tax code takes precedence over divorce decrees.
- Innocent spouse relief may help but generally only if you didn’t know about the tax debt when it was incurred.
- Making arrangements with the IRS can help protect your assets.
How does IRS debt work when you’re married?
Here’s an overview of how your marriage affects your liability for tax debt:
- Tax debt incurred before the marriage – If your fiance owes taxes before you get married, you are not responsible for paying them. The IRS cannot seize your assets for these taxes but may be able to seize jointly-held assets.
- Tax debt incurred during the marriage – You are both responsible if you file a joint return or if you file jointly or separately in a community property state.
- Tax debt after divorce – You both continue to be responsible for taxes jointly owed during the marriage, but you are no longer responsible for any taxes incurred on your separately filed returns after the marriage.
What is joint and several liability?
When you file a return as “married filing jointly”, you have joint and several liability for the taxes owed. This means that the IRS can go after both of you for the tax debt – that’s the joint liability. But the agency can also hold one of you responsible for the entire tax debt – that’s several liability.
Here’s an example. Say that you owe $30,000 on a jointly filed tax return. Then, you get a divorce. The IRS sends both of you collection notices and demands for payment. Neither of you pay so the IRS sends a Final Notice of Intent to Levy such as an LT11.
Neither of you respond or appeal, so the IRS starts to look for wages or assets to seize. Your ex-spouse does not have a job or any assets. The IRS sees that you have $30,000 in your bank account so they freeze it – unfortunately, even though you incurred the debt together, the IRS can seize repayment from just one of you.
Can you amend returns to escape joint and several liability?
No. You cannot amend tax returns that were filed jointly and switch them to married filing separately. However, if the marriage is legally annulled, you can amend and file as single or head of household.
Can the IRS seize your individual tax refunds for marital tax debt after divorce?
Unfortunately, the IRS can also seize your tax refund to cover marital tax debt after a divorce. For instance, let’s say you get divorced, you owe $20,000 from a jointly filed return and your ex-spouse is ordered to pay but they don’t.
After the divorce, you file a tax return as a single individual, and it shows a refund of $3000. The IRS will seize this and apply it to the tax debt. Even if your spouse is making monthly payments on the tax debt, the IRS will still seize your refund and apply it to the tax debt.
You cannot use the injured spouse program to protect your refund. That option is only for debts that are due exclusively to your spouse. In the eyes of the IRS, you both owe this debt together – regardless of who’s responsible in the divorce decree.
What if the divorce decree says my ex-spouse is responsible for the tax debt?
In the case of divorce, if the ex-partner obligated to pay does not do so, the remaining spouse is still responsible. The IRS can garnish wages, file a tax lien, or seize assets to collect the debt.
What if you get divorced in a community property state?
The rules are even more stringent in a community property state. In community property states, you’re responsible for taxes due on returns filed jointly or separately during your marriage.
To explain, imagine you file a joint return showing $50,000 due – the IRS can go after both of you or either of you after the divorce. In contrast, let’s say you file separately – you pay your tax bill right away, but your spouse owes $30,000 on their return. Even though that tax debt is in your spouse’s name, the IRS can still hold you responsible due to the community property laws in your state.
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
How to protect yourself if your ex-spouse doesn’t pay the taxes after your divorce
There are a few options that may help to protect you if you’re dealing with joint tax debt after a divorce.
IRS innocent spouse relief
IRS innocent spouse relief can free you from the responsibility of the tax due on a jointly filed return but only if you meet these eligibility requirements:
- The tax due was understated on the return due to your spouse action’s – for instance, the IRS audited the return, discovered that your spouse didn’t report all their income, and assessed an additional $20,000 in tax due.
- You had no knowledge or reason to know that there was a tax understatement when you signed the joint return.
- It would be unreasonable to hold you accountable for tax understatement based on the facts and circumstances.
- There was no fraudulent property transfer between you and your spouse (or former spouse) – in other words, you didn’t transfer property between the two of you to avoid paying the tax due.
You must request this type of relief no later than two years from the date the IRS first began collection activities against you.
What is separation of liability relief?
If you apply for innocent spouse relief after a divorce, the IRS will usually process the request under its separation of liability rules. As explained above, the tax debt must be related to an understatement on the return, and you must not have known about the understatement.
When reviewing your application, the IRS will consider your knowledge of the debt, your financial literacy, your involvement in household finances, and multiple other factors. If you qualify, the IRS will only hold you responsible for your portion of the tax debt.
What if you thought your ex paid the taxes but they didn’t?
Usually, you can only get innocent spouse relief related to understatements of tax on a joint return (or separate returns in community property states), but in some cases, you can get equitable relief for underpayment of tax.
To give you an example, let’s say that you file a return together while you’re married. Your spouse tells you that they paid the taxes – and you even sign the check that they say they’re going to mail. However, your spouse doesn’t pay – instead, they spend the money taking a vacation without you.
Eventually, you get divorced and a few months later, you get a collection notice from the IRS about the tax debt. You had no idea that the taxes weren’t paid – in this case, you may qualify for equitable relief, but keep in mind that it is very difficult to get this type of tax relief even if you’re divorced.
What if you were coerced into signing a false return?
Under the innocent spouse program, the IRS has special considerations for taxpayers who were subject to domestic violence and may have been coerced into signing a return. If desired, you can mark if domestic violence was a factor on your application – but you don’t have to. At Damien’s Law, we help all of our clients with sensitivity as they navigate this process.
What if you cannot receive IRS innocent spouse relief?
What can you do if you are still liable to pay taxes and your ex-spouse refuses to pay? Again, if your spouse doesn’t pay, the IRS can go after you for the unpaid taxes. To protect your assets, you need to make arrangements with the IRS. Here are the main options along with what to expect:
- Pay in full and contact the divorce courts – Paying in full will stop all tax collection actions and release tax liens against you. Then, you can pursue the debt against your spouse in Tax Court. The Court can order them to pay, and if they refuse, garnish their wages or take other steps to collect the debt on your behalf.
- Installment Agreements – If you set up monthly payments through an installment agreement, the IRS will stop all collection actions (ie, they won’t go after your wages or assets). Your monthly payments will keep the IRS at bay, and in the meantime, you can explore legal channels to get your spouse to pay.
- Offer in Compromise – You can negotiate with the IRS to pay less than you owe. If you qualify, you will only have to pay the accepted settlement, but your ex-spouse will still be responsible for the rest of the debt. Note that you can request an offer in compromise together even if you are divorced – you may want to consider that if you’re on good terms and neither of you can afford to pay the tax bill.
- Currently Not Collectible Status– If you prove that you can’t afford to pay anything, the IRS will mark your account as CNC and stop collection actions against you. However, the agency can resume collection efforts if your finances improve, and the agency can continue to go after the ex-spouse who is not on CNC status.
- Bankruptcy – After a divorce, you may be able to discharge some taxes in bankruptcy – but generally, only income taxes that are more than three years old. Bankruptcy should be used as a last resort, as it will have a significant negative impact on your credit score and make it challenging to obtain new lines of credit.
- Penalty Abatement – You may be able to get some or all of your penalties removed if you can prove that you made a good-faith effort to comply with the tax laws but were unable to do so, or if this is the first time you’ve incurred penalties – ie, you haven’t incurred penalties in the last three years. The penalty relief will reduce the tax liability for both of you, but you will both still be responsible for the remaining balance due.
How to file taxes during and after a divorce?
If you live apart but are still married, you must file as if you are married – you can either file married filing jointly or married filing separately. This is true even if you have lived apart for years.
Generally, when you file separately while married, you don’t get tax credits like the earned income credit. But, there are exceptions for couples who have a formal separation agreement and have maintained separate residences for at least six months. In this case, you can file separately but you can still get credits that are normally banned for married-filing-separately filers.
Once you are divorced, you should file taxes as a single or head-of-household taxpayer. You can no longer file as married.
What if your marriage is annulled?
If your marriage is annulled, you should amend any returns filed while you were married that aren’t closed by the statute of limitations. Generally, that includes any return due within the last three years, but it can also include returns where you have paid the tax in the last two years and want to seek a refund.
When you amend, you will file as single or head of household. You will only report your income. Then, depending on the situation, you may get a refund. This only applies to legal annulments, not religious annulments.
What if I get remarried?
If you get remarried, you will still be responsible for the tax debt from your last marriage as explained above, but your new spouse will not be responsible for that tax debt. If you file a tax return together, the IRS may take the refund and apply it to the debt from your former marriage. However, your new spouse can protect their portion of the refund by filing an Innocent Spouse claim.
They can do this after the refund has been seized. Or they can protect themselves proactively by attaching Form 8379 (Injured Spouse Allocation) to your jointly filed return. That said, you need to be careful about jointly held assets – in some cases, the IRS can seize jointly held assets for the debt of one spouse, and to protect yourself, you should consult with a tax attorney before titling assets in both of your names.
Get help with taxes after a divorce
Dealing with divorce and taxes can be extremely stressful – especially if your spouse is supposed to pay and they refuse to do so. The IRS has more collection powers than either other entity, and to protect yourself, you need to act promptly.
At Damien’s Law, we provide personalized services to all of our clients, and we can help you navigate this difficult time by coming up with a solution that minimizes your tax liability if possible and helps you protect your assets. Don’t wait – contact us for help today.
