Relief From Tax Liability For Divorced Taxpayers

There may be stressful tax consequences along with the emotional stress of divorce.

The divorce rate in America has been on the decline since the 1970s. Philip M. Cohen, a sociologist at the University of Maryland, reports that this trend is likely due to both partners in a marriage being more educated and more socially and economically stable.

When divorce seems inevitable, most couples are not thinking about the tax consequences of dissolving a marriage. And certainly, divorce should not be avoided when marriages become bad or abusive.

Along with the emotional stress associated with divorce, there may be stressful tax consequences as well.

If you are divorced, you are jointly and individually responsible for any tax, interest, and penalties due on a joint return for a tax year ending before your divorce. This responsibility applies even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns.

Relief From Joint Liability

In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. You can ask for relief no matter how small the liability.

There are three types of relief available:

(1) Innocent Spouse Relief

Separation of liability is applied to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed.

(2) Equitable Relief

The overpayment shown on your joint return may be used to pay the past due amount of your spouse’s debts. This includes your spouse’s federal tax, state income tax, child or spousal support payments, or a federal nontax debt, such as a student loan. You can get a refund of your share of the overpayment if you qualify as an injured spouse.

(3) Injured Spouse

You are an injured spouse if you file a joint return and all or part of your share of the overpayment was, or is expected to be, applied against your spouse’s past-due debts. As an injured spouse, you can get a refund for your share of the overpayment that would otherwise be used to pay the past due amount provided you meet the following two requirements:

You have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return.

You are not legally obligated to pay the past due amount.

If you are an injured spouse, you must file Form 8379 to have your portion of the overpayment refunded to you. If you haven’t filed your joint return and you know that your joint refund will be offset, file Form 8379 with your return. File Form 8379 by itself if you filed your joint return and your joint refund was offset.

Next week we will continue on the topic of divorce as we discuss the sticky aspects of alimony.

For help with these complex tax situations, you should always contact your licensed certified tax professional.