Affiliates
Auto Beauty
Books Business
Credit
Family
Food & Drink
Health
Holidays
Home Kids
Legal Loan
News Other
Sports
Travel
Web tools
Woman Link
To All Articles
Home Privacy Shopping
Disclosure
Situation 1 - Your Spouse Owns a Business
The most common situation where taxes become an issue in a
divorce is they there is a family business. The owner -
spouse may have hidden cash receipts or engage in a
practice of recording inflated expenses. This common
practice by many business owners is a fraudulent attempt to
minimize taxes. The other spouse is often aware of and
approves of this practice. During the marriage,
minimization of taxes results in higher household income
and a better lifestyle for the couple.
This practice is illegal or borders on illegal. During the
marriage it is a secret between the married couple. But
during a divorce each spouse may try to use past tax
behavior to gain an advantage. The owner - spouse wants to
minimize past income in an effort to lower child support,
alimony, or division of marital property. Of course the
other spouse wants to prove the opposite.
The result is a game of chicken - with one spouse
threatening to turn the other spouse in to the IRS. This
is a dangerous game for all involved. Do it yourselfers
will find the situation blowing up in their face. People
with attorneys may find the attorney reluctant to deal with
the situation.
The Potential Problems:
• Your Attorney cannot assist the owner/spouse commit the
crime of tax evasion.
• The non-owner spouse may end up liable for half of the
back taxes, penalties, and fines.
• The divorce court Judge may decide to turn everyone in.
• In an extreme situation, everyone can go to jail.
Situation 2 - You Make a Surprise Discovery: Your Spouse is
a Tax Cheat
Another common situation in divorce: the sudden realization
that a spouse is a tax cheat – and you were completely
unaware until the divorce.
The Potential Problems:
• You may end up owing the IRS half the overdue taxes.
• You may end up owing the IRS the ENTIRE tax bill.
• The overdue tax bill may be double the actual unpaid
taxes, due to penalties, fines, and interest.
The Potential Solution:
The IRS has a provision called Innocent Spouse Relief.
This provision gives complete or partial tax forgiveness to
an innocent spouse. But be aware - the definition of
"innocent" is technical, elusive, and difficult to
understand.
Two available forms of tax relief:
• Innocent Spouse Relief - Discharge of Liability
• Separate Tax Liability for Each Spouse
The first form of relief wipes out your tax debt in part or
full. You must have not had any knowledge of the incorrect
or fraudulently prepared tax returns. That means you
cannot look like you were aware of any part of the return.
Also, you must not have benefited from the hidden income.
That means you cannot be driving a Mercedes and at the same
time signing a tax return that show $200/week in income.
The second form of relief is slightly easier to get. If
you qualify, the IRS will separate out the tax liability of
your income from your spouse's hidden income. This type of
relief may have the effect of wiping out extreme tax bills
and penalties.
The Bottom Line: Always be aware of these types of tax
situations. The financial effect can be far worse than the
divorce. If you believe this type of problem is in your
future, start preparing immediately. Do not sign a joint
tax return for your upcoming tax filing. File
married-filing-separately. The moment you suspect a
potential tax liability, begin to separate your financial
life from your spouse's financial life and then promptly
file for divorce.
-----------------------