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Tax issues can complicate divorce proceedings

Posted on behalf of Michael D'Amico of D'Amico & Pettinicchi, LLC on Dec 05, 2013 in High Asset Divorce

Connecticut couples involved in divorce proceedings may find themselves in some trouble when tax time comes. If the couple was filing their taxes jointly before the divorce, then an ex-spouse may find that the Internal Revenue Service considers them liable for taxes owed as a result of understatement of income or similar wrongdoings by the other spouse. This can cause serious legal and financial problems for the innocent party.

Fortunately, the IRS has recourse available for individuals who find themselves in this stressful situation. Three different types of relief may be available, including "Innocent Spouse Relief", "Separation of Liability Relief" and "Equitable Relief." "Innocent Spouse Relief" applies when an ex-spouse didn't report income, reported income improperly or claimed deductions or credits they weren't entitled to. Under "Separation of Liability Relief" the responsible party receives the tax burden for the item or asset that they failed to report on their taxes.

Finally, "Equitable Relief" may apply only when a person can't qualify for one of the other two types of relief. IRS Form 8857 is available to individuals who need to file for relief. An ex-spouse can potentially recover a refund for tax money they paid that an ex-partner is responsible for.

These sorts of tax issues can complicate a divorce and result in an ugly dispute. It is important for these matters to be discussed with attorneys prior to the divorce settlement so that one party doesn't receive a nasty surprise when the tax bill comes. Even with relief available from the IRS, divorcing couples may find it easier to equitably work out their tax issues through their respective attorneys before problems arise.

Source: ABC News, "How divorcees can get hit with ex-spouse's tax penalties", Judy O'Connor, November 25, 2013