In a marriage dissolution (divorce) and property settlement, one of the spouses may be assigned to pay the outstanding tax liability of the divorcing couple or even the separate tax liability of the other spouse. If the spouse not obligated to the IRS for the tax becomes obligated under the divorce decree to pay the separate tax liability, the paying spouse should address the following issues as part of the divorce.
Payment of other spouse’s separate tax. If Spouse A has separate tax liability, either from Married Filing Separately or for single taxpayer status before the marriage, and Spouse B is obligated in the divorce decree to pay the separate tax liability of Spouse A, the following points should be addressed during the divorce.
- Difficulty in obtaining tax records. First, the IRS will not permit the paying spouse (Spouse B) to obtain information about the tax debt of the other spouse (Spouse A) from the IRS without a signed power of attorney by the taxpayer spouse. This means that the IRS won’t provide payoff information to Spouse B. Often divorcing spouses are no longer talking to each other or dealing amicably with each other during or after the divorce. The divorcing spouses should provide for a power of attorney during the divorce, which should be limited for the purposes of obtaining information on and paying Spouse A’s taxes for certain tax years, to be used even when the spouses are no longer talking.
- Financial information of the other spouse needed. If the spouse obligated to pay the other spouse’s separate tax liability needs to enter into an installment agreement or offer in compromise, the IRS will require the financial information of the spouse liable to the IRS for the tax. This will require the paying spouse to obtain the other spouse’s asset, income and expense information. My experience is that divorced spouses do not like to provide private financial information to the other spouse after the divorce. However, the IRS will often require detailed financial information for an installment agreement and definitely will require financial information for an offer in compromise. It is advisable for divorce documents to provide that the paying spouse is permitted ready access to the other spouse’s financial information, limited for the purpose of filings if required by an installment agreement or offer in compromise, under the divorce decree.
Practice Point. If the spouse who is responsible to pay tax under the divorce decree is not able to get tax information from the IRS or financial information from the other spouse as part of tax resolution efforts with the IRS, the parties may end up back in front of the divorce court fighting over this information. Save everyone time and headache by addressing these issues before the IRS comes to collect.
About the Author. Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal, state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
Date of Information: May 30, 2022.
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