A high net worth divorce will involve a wide variety of financial issues that will need to be addressed, but tax-related matters are one area that can sometimes be overlooked. Those who have complex finances may have tax liabilities, and in many cases, one spouse may be unaware of the debts owed to the IRS. It is important to address these issues during the divorce process, and divorcing spouses should also understand their options if the IRS attempts to collect the taxes owed.
Tax Liabilities and Innocent Spouse Relief
When a married couple files taxes jointly, both parties will be liable for any taxes owed, including in cases where the IRS conducts a tax audit and determines that the parties have tax liabilities due to errors on a joint tax return. Even if a divorce decree or judgment states that one spouse will be solely or primarily responsible for paying tax debts, the IRS can disregard these orders and attempt to collect the amount owed from either or both spouses.
Fortunately, a person may be able to receive innocent spouse relief, and they may be able to avoid being held liable for tax debts incurred by their ex-spouse. This form of relief is available if a joint income tax return understated the amount of taxes that a couple was required to pay. An understatement of taxes may be related to income that was not reported correctly or deductions or credits that were claimed improperly.
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