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Separation of Liability Relief for an Ex’s Tax Debt

Separation of Liability Relief: How to Avoid a Former Spouse’s Tax Debt

If you’re like most married couples, you probably filed one or more joint income tax returns with your spouse. Joint returns allow you to combine your income, credits, and deductions on a single tax return. But this benefit can sometimes be a double-edged sword in that you and your spouse are both liable for the entire tax liability.

This is known as joint and several liability, which means that if there’s an unpaid tax bill, the IRS can seek payment from one or both of you. This is regardless of whether the tax debt stems from your or your spouse’s income, or claimed tax credits or deductions.

This can sometimes lead to unfair situations, where the negligence or intentional acts of a spouse can result in an innocent spouse having to pay some or even all of the outstanding tax balance, plus penalties and interest. Thankfully, the IRS understands this sometimes happens and offers several forms of innocent spouse relief, including separation of liability relief, for taxpayers who file joint tax returns.

Key Takeaways

Married taxpayers who file joint tax returns are liable for each other’s tax debts through joint and several liability.
To protect taxpayers from being unfairly impacted by the actions of their spouses, the IRS offers several forms of spousal tax relief, including separation of liability relief.
Separation of liability relief means you only have to pay for your portion of the tax debt.
To be eligible for separation of liability relief, you must not have known about your spouse’s actions, and you must no longer be married.

What Is Separation of Liability Relief?

Separation of liability relief is when the IRS absolves one person from liability for taxes due on a jointly filed return. Then, the IRS only holds that person responsible for the tax debt, related to their income, deductions, and tax credits – not for the tax debt related to their former spouse.

This option can only apply if you have an outstanding tax bill with the IRS. If you believe you mistakenly paid for your spouse’s taxes, then separation of liability relief won’t provide you with a tax refund or reimbursement.

A classic example of separation of liability relief comes during or after a divorce or separation, where you learn that your ex or soon-to-be ex-spouse understated their income on a tax return you jointly filed with them. Maybe they had a side job or hustle they didn’t tell you about. Or perhaps they told you about their income-producing activities, but lied about how much they were actually making.

Hypothetical Scenario for Separation of Liability Relief

Two years ago, you and your spouse were married and filed a joint income tax return. On that return, you were a W-2 wage earner and earned $50,000. Your spouse was an independent contractor and told you they earned $30,000. Fast forward to the present, and you’re now legally separated, living in separate households, and finalizing a divorce.

You then receive a CP14 Notice from the IRS stating that two years ago, you and your spouse underreported your joint income by $40,000.

Because of joint and several liability, you’re liable for that unexpected tax bill (unpaid taxes, plus penalties and interest) just as much as your soon-to-be ex is. However, if you successfully apply for separation of liability relief, you’d only be liable for a small portion of it, with the exact amount of your liability depending on the finances of you and your spouse.

Who’s Eligible for Separation of Liability Relief?

To receive separation of liability relief, the following four conditions must be met:

You filed a joint tax return with your spouse;
There were understated taxes on the jointly filed tax return;
You didn’t have actual knowledge of the error leading to the income understatement; and
You’re currently not living with your spouse, or you have divorced them.

The first two conditions are fairly self-explanatory, but things get a little more complicated for conditions three and four.

Actual Knowledge of the Income Understatement or Tax Error

The IRS will conclude you had actual knowledge of the erroneous tax information if:

You knew about the income understatement or tax error;
You knew the facts that would indicate a tax credit or deduction wouldn’t be allowed;
You knew your spouse received income that wasn’t reported to the IRS;
You knew your spouse claimed false deductions or inflated expenses;
You took intentional steps to avoid learning about the income understatement or tax error;
A reasonable person in your position would have found out about the income understatement or tax error; or
The tax error relates to property you jointly own with your spouse.

Even if you had actual knowledge of the underreported income, you may still be eligible for separation of liability relief if you’re a victim of domestic abuse. This includes:

Being the victim of spousal abuse or domestic violence before signing the joint return;
Signing the joint return because your spouse threatened or pressured you; or
Having an opportunity to correct the error on the return, but not doing so out of fear.

No Longer Married or Living With Your Spouse

It’s easy to determine if you’re still married or not. But what does “not living with your spouse” mean? According to the IRS, it means either:

You’re divorced or legally separated from your spouse;
Your spouse has died; or
You and your spouse aren’t members of the same household for 12 months before requesting separation of liability relief.

You and your spouse aren’t members of the same household if you’re living apart and are estranged. Put another way, if you and your spouse have different living arrangements that are temporary, then you won’t be eligible for separation of liability relief. Here are some examples of reasons for a temporary separation:

Military service
Imprisonment
Illness
Employment
Education
Extended vacation

How to Apply for Separation of Liability Relief

To request separation of liability relief, file IRS Form 8857, Request for Innocent Spouse Relief. You don’t need to specify which relief you’re seeking when completing this form, as the IRS will automatically consider you for any type of innocent spouse relief you’re eligible for. You will, however, need to specify the separation basis for your relief and provide the appropriate documentation in support:

A photocopy of the death certificate (if widowed)
A photocopy of the divorce decree (if divorced)
A photocopy of the separation agreement (if legally separated)
The date you started living apart from your spouse (if you’re not living together and none of the other options apply)

If you’ve been living apart from your spouse, provide the starting date of this living arrangement.

Where to File Form 8857

You can file Form 8857 either by mail or by fax. The fax number is 855-233-8558, and the mailing address is:

Internal Revenue Service
P.O. Box 120053
Covington, KY 41012

If you want to use a private delivery service, use this address instead:

Internal Revenue Service
7940 Kentucky Drive, Stop 840F
Florence, KY 41042

Regardless of which method you choose, don’t submit Form 8857 with your tax return or file it with the Tax Court.

When to File Form 8857

After the IRS’s first attempt to collect the tax from you, you’ll typically have two years to file Form 8857 to request separation of liability relief. Examples of an IRS attempt to collect a tax debt include:

Sending Letter 11 or Letter 1058 that includes a section 6330 notice.
Offsetting your income tax refund for the amount of the tax debt and mentioning your right to file Form 8857.
Filing a claim in court involving you or your property.
Suing you to collect the tax debt.

What Happens After Applying

After you apply, the IRS will review your information and contact your current or former spouse to see if they oppose your request or have anything to add. This review process can take up to six months, and in the meantime, you should continue with any tax payment or filing obligations already in place.

After completing its review, the IRS will mail you a letter with its decision. If you disagree with this decision, you may file an appeal by completing IRS Form 12509, Innocent Spouse Statement of Disagreement. Keep in mind that your current or ex-spouse also has the right to file an appeal if they disagree with the IRS’s decision.

Separation of Liability Relief Limitations

Meeting the basic eligibility requirements doesn’t automatically mean the IRS will grant you separation of liability relief. If you or your former spouse transferred property between each other to avoid taxes or to commit fraud, then you won’t be eligible for separation of liability relief.

Other Spouse Tax Relief Options

If you aren’t eligible for separation of liability relief, you might still be eligible for innocent spouse relief or equitable relief. Innocent spouse relief prevents you from paying additional taxes because of your current spouse’s actions.

Equitable relief is a “catch-all” option for when you aren’t eligible for innocent spouse relief or separation of liability relief, but making you responsible for your spouse’s actions (or inactions) would be unfair.

Even if you’re eligible for separation of liability relief, you might still struggle to pay your portion of the tax debt. If this applies to you, you can consider tax debt relief avenues like an offer in compromise, payment plan, or an installment agreement.

Type of Spouse Relief	When To Use	Marital Status Requirement
Innocent Spouse Relief	You don’t want to pay for your spouse’s portion of the tax debt that’s due to their tax noncompliance.	Can still be married.
Separation of Liability Relief	You don’t want to pay for your spouse’s portion of the tax debt, but you’re no longer married to them or living with them.	Must be separated or no longer married (divorce or death).
Equitable Relief	You’re not eligible for innocent spouse or separation of liability relief.	Can still be married.

Getting Help With Spousal Tax Debt

Handling a tax debt that stems from a tax return you jointly filed with your spouse can be challenging. This is particularly true if you’re no longer living with them. Luckily, you have ways to deal with this situation, but choosing your best option can seem daunting and will be highly fact-dependent. Because of this, it’s best to consult with a tax professional. Ideally, it will be a tax lawyer from Seattle Legal Services, PLLC, as they have experience handling tax cases involving spousal tax debts and separation of liability relief. To learn more, schedule a consultation by using our online contact form or by calling 425-428-5262.

Separation of Liability Relief FAQs

What’s the difference between separation of liability relief and innocent spouse relief?

Separation of liability relief applies in situations where you and your spouse (or ex-spouse) may be jointly liable for an IRS tax debt, but you believe you should only be liable for your portion of the tax bill and not your spouse’s portion.

In contrast, innocent spouse relief helps you avoid paying additional taxes that are due to your spouse’s improper tax actions, such as underreporting income or wrongly claiming a tax credit or deduction.

Can I apply for separation of liability relief if I’m separated?

You can apply immediately after a legal separation, divorce, or the death of your spouse. If you two are estranged and have both decided to maintain separate households (but remain married), then you must wait 12 months before requesting separation of liability relief.

If my divorce decree states that all tax debts belong to my ex, do I need separation of liability relief?

Even if a divorce decree states your spouse is responsible for any and all marital tax debts, the IRS can choose to ignore it and still hold you jointly and severally liable for the outstanding tax balance along with your spouse.

How long do I have to file for separation of liability relief after divorcing my spouse?

You must file for relief within 24 months of receiving an IRS notice concerning an audit or unpaid taxes that are the result of an error on your tax return.

Will my ex find out if I apply for separation of liability relief?

Yes. After you apply, the IRS contacts your current or ex-spouse and provides them with an opportunity to participate in the process. The IRS must contact them, even for situations of domestic violence or spousal abuse. However, the IRS will not reveal your personal information (name, address, phone number, employer, income, or assets) to your current or ex-spouse.

What if I already paid off some or all of the tax debt subject to separation of liability relief?

Unfortunately, separation of liability relief can’t refund any taxes you already paid, but weren’t required to pay. It only provides relief from paying additional taxes for your current or former spouse’s tax debt.

Can I apply for more than one type of spouse tax relief?

The IRS automatically considers you for innocent spouse relief, separation of liability relief, and equitable relief when you file Form 8857.

If I live in a community property state, can I still receive separation of liability relief?

Possibly, but different conditions must exist to be eligible, such as:

Not having filed a joint tax return;
The tax item is income that belonged to your current or former spouse;
Not including the tax item as part of your gross income on your separate tax return;
Not knowing (or not having a reason to know) about the tax item in question; and
It being unfair to attribute the tax item to your gross income, based on the facts and circumstances of your situation.