Who Pays the Back Taxes in a Divorce?

It isn’t uncommon for a divorcing couple to owe federal taxes for one or more years prior to the divorce. This begs the oft-asked question, “Who has to pay the back taxes?” To put it shortly – it depends. Here are a few of the possible situations along with more resources to consider if this applies to you!

Joint and Several Liability

You first need to understand “Join and Several Liability.” If you filed joint tax returns as spouses, both spouses become responsible for any taxes owed, including interest and penalties. However, while both spouses are responsible for the debt, the taxing agency can collect more than one half of the debt from either spouse. The two spouses must arrange payment and reimbursement between themselves. This obviously becomes complicated during a divorce. A divorce judgement can assign tax debt to help arrange this between the parties. However, the order only bounds the two spouses and how they will divide responsibility for the debt. The IRS is not bound, and can still seek payment of the tax debt from either spouse.

Getting Relief Being Joint & Severally Liable

In certain situations, it is possible for a spouse to get relief from being joint and severally liable for a marital tax debt. This releases the spouse from responsibility for the debt, and can change who pays the back taxes in a divorce. However it requires one of three possible situations and the filing of the appropriate form with the IRS. With that said, here are the three main ways to seek relief:

Innocent Spouse Relief

If a spouse did not report income correctly, without your knowledge, and it would be unfair for you to be liable for the resulting tax, you may qualify for Innocent Spouse Relief. You must file for this relief within two years of the IRS trying to collect the owed tax. For example, if your spouse attempted to hide income which he spent on an addiction problem, there’s a chance you could get relief as an innocent spouse. For more information and to file, see IRS publication 971.

Separation of Liability Relief

If a spouse under reported their income resulting in an underestimated of the tax owed by the IRS, you might qualify for Separation of Liability Relief. This also requires that you had no actual knowledge of the unreported income, but also requires that the spouses are divorced, legally separated, widowed, or have not lived together for 12 months prior to asking for help. While similar to Innocent Spouse Relief, this applies only to already separated spouses. See IRS publication 971.

Equitable Relief

Finally, if you don’t fall into the first two categories, but you still feel that it is unfair that you’re being held responsible for your spouse’s liability, you can apply for the more general “Equitable Relief.” The IRS will consider all the facts and circumstances, and will likely request more information, before deciding whether or not to grant relief. See IRS publication 971.

Talk to a Tax Expert for More Information

To obtain relief in any of the above ways, you have to file the appropriate form and documentation to the IRS. Sometimes, these issues can be more complicated than they appear. We recommend that you consult with a tax expert for assistance with any requests to the IRS. Now you know who pays the back taxes in a divorce!

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