Nov 27, 2023
The end of a marriage is never an easy time… it is often fraught with disagreements about assets, money, children, and who feels who is owed more at the end. It’s never easy. Add a tax debt to the mix, and the stress related to the “uncoupling” is compounded by one hundred. We are going to expose what happens with tax debt, how it can be addressed before and during the divorce process, and if not tended to before, how the debt will need to be addressed after the divorce is finalized.
First things first, please know that even though a divorce decree may stipulate that one spouse is responsible for a tax debt over the other, the Internal Revenue Service will not recognize that directive as binding when it comes to collecting a past-due tax debt. If you file a joint income tax return with your spouse, you attest to being responsible jointly or severally for any outcomes related to that return, including a bill. Getting divorced does not change this.
Knowing what we know about the plans for increased levels of collection activities by the Internal Revenue Service due to the pandemic recovery efforts and the recently revealed, ever-increasing tax gap tallies, plan for the IRS to take advantage of a divorce situation: instead of one source to seek payment from (the couple), they now have two avenues to press on for payment, one avenue for each spouse. Divorce decrees be damned!
Once the ink has dried and collection letters from the IRS are being sent to both spouses, what is an ex-spouse to do? Definitely do NOT ignore the notices. Though you may be reeling from the post-traumatic stress of the divorce and all the ugliness that comes with it, you MUST take heed of the warnings the IRS issues in the notices. The IRS will consider your individual financial condition on its own merits and will consider any resolution your new financial condition may qualify you for:
These resolution options are available to most taxpayers as long as the requirements for the programs are met and your financial condition meets the guidelines for each. Other options may include Innocent Spouse Relief, Separation of Liability Relief, or Equitable Relief, but these programs are harder to qualify for than the main resolution options the IRS offers.
To determine how the IRS would view your financial condition, be proactive and complete the document required as the cornerstone of any resolution that would be considered: Form 433-A, Collection Information Statement for Wage Earners or Self-Employed Individuals. As a recently single person, seeing your financial condition spelled out in black and white will help you achieve a semblance of control over where you have landed, which can help following such a traumatic event in your life.
Now, remember that the IRS will recognize expenses they deem “necessary” for you to tend to your health and welfare as an individual needing to address a tax debt, but it isn’t always set to a realistic level. For example, a single person in the Los Angeles, California area is limited in the IRS' eyes to only being allowed to spend $2,817 per month on rent/mortgage, renters or homeowner’s insurance, utilities, internet, cable, and cell phone bills. Show me the taxpayer who can survive in LA for that low amount spent on those types of bills, and I will show you someone living in a 100-square-foot apartment with a leaky ceiling and no hot water. However, don’t despair; these are starting points the IRS recognizes, and there is room for negotiations. To learn the starting points for the initial expenses recognized by the IRS, check out the Collection Financial Standards portion of the IRS’ website.
If you or your client is facing a divorce situation, the best recommendation I can make is to be proactive before the divorce decree is signed. Consult a professional who can give an experienced and impartial recommendation to both sides that considers the taxes owed, the source of the taxes, and the resolution options available before, during, and after the divorce, and allow that professional opinion to be considered during the divorce negotiations made between both parties. While it adds an additional topic to the perceived battlefield, it will enable the debt to hopefully be addressed pre-emptively in an amicable way by the collective rather than later by the severed parties.
With over 24+ years of experience in handling tax debts for individuals, married or divorced, the team at Golden Lion Tax Solutions has the experience and knowledge necessary to handle delicate situations such as this. If you or your client find this is an unavoidable road that needs to be traveled, reach out to us. We can provide invaluable insight into ways to solve the debt before any perceived severance of debt responsibility is assigned or can work with you one-on-one after a decree is finalized to help pick up the pieces and negotiate the best resolution for you.
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Your future and your family deserve the right protection. Golden Lion Tax Solutions will be your advisor and confidant throughout the entire journey. We guarantee to offer you or your business best-case solutions for your tax debt. We are by your side every step of the way. Start now and get your life back.
For help with your tax debts, email contactus@goldenliontaxsolutions.com or call 833-LION-TAX (833-546-6829)
Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.
