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Since your marital status can affect the way you file taxes, your divorce is an important consideration at tax time and vice versa. The tax consequences of divorce can make a bad situation worse, which is why it is important to work with an attorney who can foresee what’s ahead and help you make the best decisions regarding divorce and your taxes.

There are two basic concerns about taxes when you are in the midst of a divorce. These include:

  • Potential changes to income, deductions, number of dependents, credits, taxes paid to avoid penalties, and tax rates
  • Legal liabilities, such as those associated with filing jointly

Before making decisions about your divorce it’s important to understand how those decisions will affect any of these concerns. Failing to have a comprehensive understanding of how changes affect your taxes can cause you to take a hard hit come tax season.

Does It Matter How Much Money We Have?

Divorcing couples often assume their situation is different based on their wealth. When it comes to taxes this is partially true. Wealthier divorcing couples tend to have more tax issues, but this doesn’t mean a couple of modest means won’t also run into problems. Furthermore, the average middle class couple will experience more of a pinch over a tax bill of a just a few thousand dollars.

Filing Taxes

The timing of your divorce is important, especially when it comes to taxes. Chances are you will be in the process of divorce for at least one tax season and you will need to decide whether to file jointly or as a married couple filing separately. Separated couples can file joint returns, as long as they are filing for a year in which they were married.

Some couples will require extensive analysis of their tax issues. For most couples, filing jointly is the best option, but it’s important for your attorney and/or your tax accountant to have a clear understanding of your situation to help you make the best decision. Filing jointly obligates both spouses to the tax bill, but it usually results in the lowest taxes due.

Tax Audits

Some formerly married couples are disturbed to learn the IRS can audit them for taxes filed several years ago. This means even if your divorce has been final for several years, you will need to work with your spouse should you find yourselves being audited prior to the end of your marriage. It’s a good idea to contact an attorney who understands taxes and your divorce situation as soon as possible, should you receive notice of an audit. This is especially true if you and your spouse have a difficult time seeing eye-to-eye on issues and you are concerned he or she could do something to negatively affect you and your situation with the IRS.

The IRS has the right to pursue you for any taxes owed, regardless of any arrangements you’ve made with your spouse or former spouse in your divorce settlement. You are not liable for the current tax bill of your former spouse, but if the IRS can prove you were married during the time in question, you can face penalties related to an overdue tax bill.

The IRS does address issues related to divorce and taxes in Section 434(c)(1) of the Internal Revenue Code, when:

  • A joint return was filed
  • The return contained a "grossly erroneous" error
  • The innocent spouse can establish lack of knowledge
  • In light of all the facts and circumstances it would be "inequitable" to impose the tax on the innocent spouse

If you are in the midst of a divorce and your spouse has attempted to cheat on his or her taxes by failing to claim income or being dishonest about deductions, you need legal protection. You are in a precarious position, still being legally bound to someone, but not trusting that person to act in your best interest.

It’s important you find an attorney who understands taxes and financial issues, and who is also aware of divorce laws in your state. He or she can assist you with finding a proper advisor regarding any difficult tax issues or consequences.

To learn more or to discuss the details of your situation, contact The Law Offices of Robert M. Geller at 813-254-5696 or use the online contact form.

Call (813) 254-5696 anytime, or use this contact form, for your free initial consultation.
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