Yes, you may be held liable for your spouse’s tax debt, but it depends on whether the debt was incurred before, during, or after your marriage. This guide explains how spousal tax debt works in a variety of situations.
To get help now, contact us at Damien’s Law today – we simplify tax resolution for our clients, and we always provide each of our clients with the individualized services they need.
Key takeaways
- Tax debt incurred by your spouse before marriage – your spouse is responsible.
- Tax debt incurred on a married filing jointly return – you are both responsible.
- Tax debt that you didn’t know about related to a married filing jointly return – you may not be liable if you qualify for innocent spouse relief.
- Divorce decrees – do not alter the joint liability for tax owed on a jointly filed return.
- Tax debt incurred on a return filed married filing separately – only liable for the spouse’s tax debt if you live in a community property state.
Tax debt incurred before marriage
Any tax liability your spouse incurred before you got married belongs to your spouse alone. The IRS will not be able to seize your assets for these unpaid taxes, but they may be able to seize certain jointly held assets. To protect yourself, carefully consider the options before marrying someone with tax debt.
If the IRS intercepts your tax refund for your spouse’s debt, you can apply for Injured Spouse Status and get it back. To proactively avoid having the IRS seize your refund for your spouse’s tax debts, attach Form 8379 (Request for Injured Spouse Relief) to your tax return – you can do that whether you e-file or mail in a return. Note that this will slow down the processing of your tax return.
Injured spouse relief allows you to keep your portion of the tax refund. That is not necessarily half of the refund – rather, it’s the amount of the refund based on your income.
Tax debt incurred while married
You may be liable for tax debt incurred during your marriage – unless you take steps to limit your liability. You can protect yourself by filing separately or applying for Innocent Spouse Relief.
Filing separately to limit tax liability
Married couples can file jointly or separately, and if you file separately, you are not responsible for your spouse’s tax bill (unless you live in a community property state). Unfortunately, however, filing separately prevents you from getting several types of tax credits including the earned income tax credit – unless you meet certain exceptions such as living apart for the last six months and having a legal separation agreement.
Couples often take this route if they’re planning to get divorced or if they don’t trust their partner. Here’s how it works, imagine that if you file jointly, you owe $20,000 – you are both responsible for this debt. Even if your spouse dies, you’re still responsible for all of it.
In contrast, imagine that you file separately – your spouse owes $19,000 and you owe $1000. Now, you’re only responsible for the $1000. Again, however, if you live in a community property state, you are generally both liable for the full $20,000 owed.
Which states are community property states?
The following states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Applying for innocent spouse relief
Innocent spouse relief saves one spouse from liability when the other deliberately lied to the federal government to decrease their taxes. Essentially, if one spouse significantly underreports their income on the return, but the other spouse was unaware, they can get absolved from liability for that tax debt.
For example, say that you file jointly, the IRS audits your return, and the auditor discovers that your spouse didn’t report income and now you owe an additional $50,000 in tax. If you didn’t know about the income and had no reason to know, the IRS may grant you innocent spouse relief.
To apply, file Form 8857 (Request for Innocent Spouse Relief). When reviewing your application, the IRS may consider the following types of factors to determine if you qualify:
- Whether or not you had a reason to know about the income.
- Your involvement in household finances.
- Your level of education and degree of financial literacy.
- Whether or not it’s fair to hold you responsible.
- Your current marital status.
The IRS refers to innocent spouse relief as separation of equity relief if you’re no longer married – for instance, if you’re divorced or widowed.
Generally, you can only get innocent spouse relief if there was an understatement of income on the tax return. However, in extremely rare cases, you may qualify for equitable relief due to an underpayment.
For example, say you file a return with your spouse and to your knowledge, they sent in a payment for the balance due. However, they really took the money and went on a vacation without you. In that situation, you may want to look into equitable relief.
When you apply for innocent spouse relief, the IRS will consider all of these options. There are also special rules for spouses who were coerced or forced into signing a return against their will.
How does innocent spouse relief work?
If you qualify for innocent spouse relief, you will be responsible for the amount due shown on the return, but you will not be responsible for your spouse’s underpayment.
To give you an example, say your joint return showed a balance due of $10,000. Then, the IRS assesses an additional $5000 due to income that your spouse didn’t report on the return. If you qualify for innocent spouse relief, you’ll still be jointly liable for the $10,000, but only your spouse will be liable for the additional $5000.
How does equitable relief work?
If you qualify for equitable relief, you will only be responsible for the taxes related to your own income and expenses. However, if you can prove that you thought in good faith that your spouse paid your portion of the tax liability, you may even be able to get relief related to that underpayment. Again, this type of innocent spouse relief is very rare.
Tax debt after divorce
Once you are divorced, you can no longer file as married, and thus, you will not be liable for each other’s tax debts incurred after the marriage. But what about tax debt incurred during the marriage? Unfortunately, if you filed jointly or if you filed separately in a community property state, you are still responsible for the tax debt.
What if the divorce decree says my spouse has to pay the debt?
Unfortunately, a civil divorce decree does not trump the federal tax code. You are still responsible for this debt, regardless of what the divorce decree states.
Here’s an example: say you were married and filed a joint return showing you owe $50,000. You make payments and get the tax debt down to $45,000. The divorce decree says that your ex-spouse must continue making the payments. However, they stop making payments.
Now, you file a return as a single person and it shows a refund of $2,000. The IRS will keep the refund and apply it to your tax debt. Also, in this situation, the IRS can garnish your wages or seize assets that are just in your name for the tax debt.
Unfortunately, in this case, you don’t qualify for injured spouse and generally not for innocent spouse either. There’s nothing you can do – except call your ex or your attorney and request that they start following the terms of the divorce decree.
What if my spouse dies?
Joint tax debt survives death. If you file jointly (or separately in a community property state), you both owe the money jointly and severally.
For example, say that you file jointly and the return shows that you owe $10,000. Then, your spouse dies the next year. You’re still responsible for that tax debt – unless you can qualify for some type of innocent spouse relief.
Can the IRS seize my house or assets when my spouse owes money?
Yes. If you filed jointly, the IRS could seize your assets – even if you are divorced and your spouse is responsible for the tax debt in the divorce decree. However, if the tax debt was incurred before your marriage, the IRS generally cannot take assets that are just in your name, but they may be able to take assets that are owned jointly.
Fortunately, the IRS is more likely to garnish wages or issue a tax lien than it is to seize your house or physical property. If you do not want the IRS involved in your bank account or other assets.
How to protect assets from seizure due to a spouse or ex-spouse’s tax debt
To protect your assets, consider the following:
- Determine if you are liable for the tax debt.
- Consider requesting innocent spouse relief if applicable.
- If not liable, apply for injured spouse relief to protect your tax refund.
- If you’re liable for the tax debt and you don’t qualify as an innocent spouse, request an installment agreement, offer in compromise, or currently not collectible status.
- If you receive a Final Notice of Intent to Levy With Your Right to a Hearing, request the hearing by the deadline. Even if you don’t think you’re liable, a CDP hearing will allow you to appeal and request payment options.
When to talk to a lawyer
Fighting the IRS can be challenging, even under ideal conditions. Dealing with tax debt that your spouse incurred before you were married (especially if they didn’t tell you about it before the wedding), can be stressful.
It can also be very hard to deal with unexpected tax liabilities incurred while you were married, or an ex-spouse who refuses to pay their portion of the tax bill. If you are facing liability for something your spouse did, consider talking with a tax attorney.
Damiens Law Firm, PLLC offers free consultations to help you understand your rights and legal options. We are ready to fight for you when tax debt threatens your future. To get help now, contact us today at 601-957-9672 or by scheduling a free intro call now.
