What Happens to Your IRS Debt During Divorce?

The financial aspects of divorce are frustrating enough as is, but that headache grows all the more painful when tax debt comes into play. You’re in for a particularly difficult ordeal if, while married, you opted to file joint tax returns.

Your previous filing approach may have left you and your ex equally liable for all taxes owed. This applies even if one person was responsible for earning the bulk of the income — or if one person incorrectly made deductions.

Tax debt can be tricky to escape in the midst of a divorce, but a few viable options are available for relief:

Innocent Spouse Relief

You may qualify for innocent spouse relief if your ex made improper deductions or failed to report income in the first place. This option could relieve you of your responsibility for paying not only owed taxes but also, any accrued interest or penalties.

Separation of Liability Relief

This approach involves the allocation of understated taxes from joint returns, as well as interest and penalties. To qualify, you must either be legally separated from your ex — or you should not have resided within your ex’s household in the last twelve months.

Equitable Relief

Don’t lose hope if you fail to qualify for the two main forms of relief highlighted above. If the amount reported on your return was correct but the tax wasn’t paid, you may qualify for equitable relief instead. The IRS examines a variety of factors when determining eligibility, including current economic hardship and your ex’s legal obligation to pay based on your divorce decree.

As you deal with the fallout of divorce, look to the Highland Tax Group to take at least one major source of stress off your plate. Our trusted team can provide valuable assistance as you deal with the IRS. Contact us today to learn more.