As a divorcing woman, you almost certainly have a number of pressing financial concerns on your mind. Unfortunately, when it’s time to file your federal income tax return, it’s likely the Internal Revenue Service will give you even more to consider. Every year brings more nuances and complications to the tax code, and if you’re divorcing, you could be facing additional unique challenges, as well.
Like most married couples, you’ve probably been filing joint tax returns, and like too many married women, you may have left that task mostly to your husband to do, or to oversee. But even though that approach was convenient when you were married, now that you’re divorcing, your joint tax return could be a potentially dangerous pitfall.
For example, should it someday come to light that taxes have been underpaid, it won’t matter to the IRS whether it was you or your husband responsible for the “oversight.” If you filed a joint return, the government can come after you both, even if you didn’t personally earn one dime of the reported income! What’s more, you will still be liable for errors and omissions in joint tax returns even after your divorce is final. That could mean a financial disaster at a time when you’re least able to weather one.
How bad could it get? Well, if your husband has underreported income, hidden assets, claimed improper deductions or tax credits, or engaged in other dodgy shenanigans, he’s knowingly set you up for a tremendous financial burden. Taxes, interest, and penalties can quickly add up to staggering amounts, and you could find yourself owing the federal (and your state) government many thousands of dollars through no fault of your own.
So how can you protect yourself against being pursued for tax debt that isn’t fairly yours?
- File separately. If you have even an inkling that your husband is being less than totally honest where taxes are concerned, you should consider filing a separate tax return. Under the provisions for “Married Filing Separate” (MFS) status, you would be responsible only for taxes on income subject to reporting on your individual return. Using MFS status might mean that in total, you and your husband will pay more in taxes than if you’d filed jointly, but believe me, it will be worth it not to be considered responsible for a fraudulent return.
- Pursue Innocent Spouse Relief. If it’s too late to file separately, all is not lost. The IRS does recognize that there are innocent spouses who sign joint income tax returns unaware that anything was amiss, and provides some protection for those innocent spouses. You can formally apply for Innocent Spouse Relief, which may absolve you of responsibility for paying tax, interest, and penalties if your husband is found to have made false statements on your joint return.
Obtaining innocent spouse status isn’t easy or instantaneous, however. You will have to prove that at the time you signed the joint tax return, you didn’t know, and further, that you had no reason to know, that there was an understatement of tax. That can be difficult to establish in all but the most black-and-white circumstances.
To decide whether you qualify, the IRS will consider your financial situation, your education and business experience, and even whether or not you asked any questions about items on the return when you signed it. The determination might be that you might have known about some of the understated income, but had no reason to know about another portion, and are therefore entitled to partial relief.
For more information, as well as forms and requirements for applications for Innocent Spouse Relief, visit the IRS’s web page on Tax Information for Innocent Spouses.
Filing separately and pursuing Innocent Spouse Relief are two ways to save yourself deep trouble with the IRS if your husband’s tax situation is not what it should be. However, I’d prefer things never get even that far. My advice is to be proactive. As with so many financial matters, it is always better to be knowledgeable early on. The more you know about your husband’s business, the less likely you are to sign a joint tax return you can’t stand behind.
###
Reminder: Don’t fall victim to your husband’s tax shenanigans. As a single woman, maintaining your own financial security will be a top priority. If he’s been playing fast and loose with the tax returns, and your signature’s on them, then that security is at risk.
Hot tip: If you need to prove to the IRS that you’re an innocent spouse, consider engaging a forensic accountant to help make your case. It will be worth the up-front expense to avoid huge penalties and a tarnished record later.
Legal matters: Some women insist that their divorce settlement agreement specifies that if there are tax issues to be rectified down the road, their ex-husbands will be responsible for doing so. On the surface, that sounds reasonable, and you can certainly hope that your ex would abide by such a provision. Understand, however, that the IRS is not bound by your divorce agreement, no matter what it says about taxes. As far as the feds are concerned, if you’ve signed the tax return, you’re responsible for it… and if taxes are owed, you can be sure they will come after you, as well as your ex, for payment.
_
Jeffrey A. Landers, CDFA™ is the author of the Think Financially, Not Emotionally® series of Amazon best-selling books, Divorce: Think Financially, Not Emotionally® – What Women Need To Know About Securing Their Financial Future Before, During, And After Divorce, Volumes I & II, DIVORCE Financial Planner For Women, Volume I and the newly released, A Woman’s Guide To Financial Security After Divorce – The Basics: Creating A Solid Foundation.
He is also the founder of Bedrock Divorce Advisors, LLC, a divorce financial advisory firm that works exclusively with women throughout the United States, and the creator of ThinkFinancially.com, a website created to educate, empower, and support women before, during, and after divorce.
Landers writes “Divorce Dollars and Sense,” a weekly blog for Forbes.com about the financial aspects of divorce for women, and he contributes articles regularly to The Huffington Post, DailyWorth, More.com, Lawyers.com, and many other publications.
