#1 Secret Tip to Avoid Taxes During Divorce
This is a question from one of our potential clients:
“My husband and I are getting a divorce, but my husband owes taxes that I should not have to pay. What’s the best way to avoid having to pay his taxes?”
That’s a big question, and we are going to cover that today.
I want to start by saying this – divorce is almost never easy. There’s disappointment. Sometimes there’s hurt. Sometimes there’s anger—all sorts of other emotions.
One of the best things that you can do, especially when there’s money involved, finances, tax liability – is to approach a divorce with civility.
Try to get along, try to be able to talk through some things, because that’s going to give you an immeasurable benefit in the overall process.
When we talk about divorce and tax liability, I’m going to tell you, hands down, if one spouse is responsible for the tax: The single best way to avoid having to pay is to ask that spouse to pay it. And let them do it.
Now, that doesn’t always happen. It almost does not happen in a divorce. But, pound for pound, that’s going to be the single best way.
Now, let’s talk about the more common way to approach this.
Innocent Spouse Relief
A lot of you have already heard of Innocent Spouse Relief.
If not, we did a video earlier on Innocent Spouse Relief. Take a look at that video here; it will give you an excellent background.
When people seek Innocent Spouse Relief, that’s often because they filed a joint return, or a joint return was filed. One of the spouses had some income that the other didn’t know about or ended up with tax liability that the other didn’t expect.
Maybe it was that you were audited later, and the one spouse had no idea this was happening. Or that you filed a tax return together, and one spouse says, “Don’t worry. I know that’s my tax. I’m going to pay it.” And then they never did.
Or there’s some very unfair situation where one spouse should not be liable. For example, a joint tax return was filed. And the one spouse didn’t know about it.
When filing for Innocent Spouse Relief, it’s a very detailed application and series of documents.
It’s also a very careful, very well thought out, and articulated legal argument. Because the argument tends to be very technical, it also requires a certain amount of competent, clear legal writing.
And frankly, most people can’t do it. For that matter, even your divorce attorney is just not equipped to do that because you’re writing a technical tax argument.
After that application, after that legal argument is all developed, all of that will get filed with the IRS. Your tax attorney is going to present a single or maybe multiple clear and technical arguments.
One thing that I would absolutely recommend – and I want family law and divorce attorneys to get on board with this – Before you find a divorce attorney, seek out an attorney to develop and present to the IRS that Innocent Spouse Relief application.
The reason I say that’s the best time to do it is that your family law attorney would love to have those same arguments.
And that’s a great way for you to get kind of two swings at the ball.
No matter what IRS or state government says, another swing at the ball is for your family law attorney to be able to make that same well-drafted legal argument in your divorce case when you deal with asset separation.
Two swings at the ball. IRS gets to look at it, and the family law judge gets to look at it. This is the best way to protect you.