Unpaid Tax: Can a Divorce Decree Protect You From the IRS?
If your divorce decree states that your ex is required to pay your shared IRS tax debt, all you have to do is stay caught up moving forward, or so you think, until you start getting payment reminders in the mail. Unfortunately, this is more common than you might think.
Many people think that a divorce decree protects them from the IRS’s collection efforts, but the IRS follows its own rules. Much like a credit card company will still pursue you for payment even if the divorce decree says your ex should pay it, the IRS will continue to contact all liable parties until tax debt is paid. That means that you could have a lien placed on your property, lose your income to wage garnishment, or have your assets seized by the IRS.
Understanding how tax liability works and what your options are when your spouse isn’t abiding by a divorce decree can help you protect yourself and your assets post-divorce. To get help now, contact us at Seattle Legal Services today.
Key Takeaways
- A divorce decree is between you and your ex-spouse, not the IRS.
- If you file a joint return, both taxpayers are liable for the tax due on the return.
- The IRS can hold you liable for unpaid tax debt, no matter what your divorce decree says.
- You may seek resolution in court or look into innocent spouse relief.
- A tax professional can help you apply for innocent spouse relief.
Who is Liable for the Tax?
Who is liable for tax debt depends primarily on how you filed. If you and your ex-spouse filed a joint return for the year or years that make up your tax debt, you are individually and jointly liable for the entire bill. This means that the IRS can pursue either or both of you for the full amount due. They won’t go after each party for half or look to a divorce decree—they will look at who’s liable for the debt and collect whatever they can from whomever they can. This is called “joint and several liability.”
If you chose married filing separately, you are liable only for the share of tax debt listed on your individual tax return—even if you were married during the year you filed for.
Why doesn’t the divorce decree matter when it comes to tax debt? That’s because a divorce decree is a civil agreement, but there are legal statutes in the Internal Revenue Code (IRC) that outweigh that civil agreement.
Your and your ex-spouse’s legal obligation to pay the tax due is not canceled out by your divorce decree. The same is true for many other types of debt. For example, if your ex-spouse is supposed to pay the mortgage per the divorce decree, but they do not do so, your credit may continue to be impacted, and the mortgage company will continue to pursue you for payment until you are no longer on the loan agreement.
The divorce decree is an agreement between you, your spouse, and the state—it governs how you and your spouse conduct yourselves, not how creditors must handle your debt.
What Can the IRS Do to Collect?
The IRS can do anything to collect your tax debt, as long as it is permitted under the Internal Revenue Code. There are no special exemptions for tax debt covered by divorce decrees. Before they begin aggressive collection efforts, the IRS will send multiple notices out to inform you of your tax debt. They may send CP14, CP501, CP503, and CP504. If they do not receive any communication, payment, or payment plan applications, they will then start to pursue more aggressive collection actions.
The IRS generally starts by placing a lien on your assets. This lien extends to everything you own, including real estate, bank accounts, vehicles, and intellectual property. If a lien does not result in payment of the tax debt, the IRS may then move to freezing your bank accounts, garnishing your wages, or seizing your assets. They can take these actions against you or your spouse, regardless of what your divorce decree states.
How to Protect Yourself From the IRS
Being proactive and staying informed off our tax situation can help you avoid aggressive collection efforts that tank your post-divorce financial stability.
- Stay up-to-date on your current tax standing. Your IRS.gov account will show any payments made toward your tax debt, notices sent out, and any other action taken on your tax account. This can help you stay informed of any payments your ex-spouse does (or doesn’t) make.
- Contact a tax attorney. If you begin receiving collection notices, it’s important to reach out to a tax attorney right away to explore your options. While you cannot be absolved of liability due to a divorce decree, you can take steps to show the IRS you are attempting to resolve your tax debt.
- Reach out to your divorce attorney. If your ex-spouse is not following the terms of your divorce decree, they may be in contempt of court. With the help of your divorce attorney, you may be able to file a motion with the court to force your ex to pay and uphold the terms of your contract.
Throughout this process, keep copies of everything. This includes notices from the IRS, communication between you and your ex regarding the tax debt, anything you send the IRS, and evidence of your efforts to resolve the issue.
When Innocent Spouse Relief Applies
There may be situations where innocent spouse relief applies, but it’s important not to assume that this relief option is relevant. You should first look into it to find out if you qualify.
Types of Relief
There are three main types of innocent spouse relief recognized by the IRS. In all cases, these options only come into play if you’ve filed a joint return or if you filed separately but live in a community property state. They include:
- Innocent spouse relief: This type of relief is generally reserved for cases where one spouse hides income, claims deductions they are not entitled to, or otherwise misleads the IRS, all without the other spouse knowing. Then, the IRS discovers the error and assesses a new tax liability against the couple. If you didn’t know about the tax liability and had no reason to, you may be able to get relief.
- Separation of liability relief: Separation of liability relief may allow you to avoid paying taxes for your spouse’s income. This option is only available if your taxes were understated due to errors on your return, you did not know about the errors, and you have not lived together for at least 12 months at the time you request relief.
- Equitable relief: Equitable relief may be available if your taxes were paid late or not at all, you had no knowledge or control of the finances, and you would suffer hardship if forced to pay.
Talk with a tax attorney to learn which of these options may apply in your situation.
When You May Qualify
Qualifying for innocent spouse relief is a process that varies slightly from person to person, depending on your circumstances and which type of relief you are requesting. You might qualify if you did not know about the tax debt, you had no reason to know about the tax debt, you were not involved in the finances, or you were subject to domestic abuse or coercion.
If you and your spouse both knew of the tax debt, you likely do not qualify. However, if the debt was caused by their error and they just agreed to take it on in the divorce so you did not have to go through the IRS to request relief, you may still be able to request relief this way.
How to Apply for Relief
You must fill out IRS Form 8857 to request innocent spouse relief. You should file as soon as you know you qualify—the longer you wait, the more likely it is you will unintentionally run out of time. For example, if you receive a notice but decide to give your ex-spouse time to catch up, you could end up liable for the debt. You typically have to file Form 8857 no later than two years after the first collection notice you receive from the IRS.
Gather evidence to support your claim and ensure that you submit copies with your application. This is particularly important if you are requesting equitable relief. This is generally the most flexible relief option, but because of this, you have to go to great lengths to prove your case and show the IRS that you are not just trying to evade responsibility for tax debt.
In most cases, a finalized divorce decree means freedom from your ex-spouse and their financial problems. But when you get caught up in your ex’s tax mess, you still have options. The earlier you start exploring your options, the easier it is for your tax professional to help you. If you’re receiving collection notices for tax debt that shouldn’t be your responsibility, let’s talk.
Call Seattle Legal Services at 206-536-3152 or reach out online to set up a consultation with our team now.
Frequently Asked Questions
The divorce decree says that my ex is responsible for our tax debt. Can’t the IRS just go after them?
Unfortunately, no. The divorce decree is an agreement between you and your ex-spouse. The IRS is not party to it and isn’t bound by its terms. If the tax debt resulted from a joint tax return, the IRS has the legal right to go after either party for payment in full.
What is joint and several liability?
The term “joint and several liability” means that you and your ex-spouse are responsible for the full amount of the tax debt together and individually. The IRS can demand payment in full from both of you together or separately. They do not have to divide it based on income or other factors unless specific types of relief apply.
Do I qualify for innocent spouse relief?
You may. There are three forms of innocent spouse relief, and depending on your situation, you may qualify for one of them. Consider discussing your options with a tax professional to learn more.
I had to pay to protect my bank account. How can I get that money back?
You may have to take legal action against your ex-spouse to recover what you paid. This allows you to protect your assets from seizure while still attempting to uphold the divorce decree.
Sources:
https://www.irs.gov/individuals/separation-of-liability-relief
https://www.irs.gov/pub/irs-pdf/f8857.pdf
https://www.irs.gov/instructions/i8857
https://www.irs.gov/individuals/equitable-relief
https://www.irs.gov/individuals/innocent-spouse-relief
https://www.irs.gov/individuals/filing-taxes-after-divorce-or-separation
https://www.irs.gov/publications/p504
https://www.irs.gov/newsroom/some-tax-considerations-for-people-who-are-separating-or-divorcing