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Divorce and Taxes Owed

dollar bill with rings

Untying the Knot

Divorce is a life-altering event that affects every aspect of your world, including your finances. Despite the emotional turmoil that you will experience, it’s essential to understand how divorces can impact the taxes owed by both parties. It’s worth noting that divorce does not transfer or eliminate any party’s responsibility, according to the IRS.

The Connection between Divorce and Taxes

Divorce doesn’t just signify a legal separation; it can also bring about significant changes in your tax situation, including the possibility of joint tax debt.

Here's what you need to know:

  1. 1. Filing Status Changes: When you’re legally divorced, your filing status changes. This shift can impact your tax brackets, deductions, and credits. Understanding your new filing status is crucial to ensure accurate tax reporting.

 

  1. Joint Tax Debt: During a marriage, both spouses are jointly responsible for any tax debt incurred. Even if one spouse earned the income or managed the finances, both are liable for any unpaid taxes. This responsibility continues after divorce unless the IRS approves innocent spouse relief.

 

  1. Child Custody and Dependents: Determining who claims the children as dependents can have tax implications. The custodial parent usually claims the child-related tax benefits, such as the Child Tax Credit and Head of Household status.

 

  1. Property Divisions and Capital Gains Taxes: During a divorce, the couple will often need to decide how to divide their property. This can involve selling assets and splitting the proceeds. On the other hand, capital gains taxes are imposed on the profit made from the sale of an asset. The tax is usually calculated based on the difference between the sale price of the asset and its original purchase price.

 

  1. Retirement Accounts and QDROs: Splitting retirement accounts requires a Qualified Domestic Relations Order (QDRO). Handling QDROs incorrectly could lead to tax penalties. Joint tax debt can arise if both parties contributed to retirement account issues during the marriage.

Conclusion

Divorces bring significant life changes, and understanding the impact on taxes owed, including the potential for joint tax debt, is essential. Filing status changes, joint tax debt, child custody considerations, property division, and retirement accounts are all interconnected with your tax obligations. 

By being informed and seeking expert guidance from Priority Tax Relief, you can navigate the intricate web of divorce-related tax matters, including joint tax liabilities.

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FAQs

 The simple answer is no. A business and a person are completely separate, thus, any personal tax debts or liabilities should not affect your business.

Tax debt can be an exhausting and complicated thing to deal with on your own. Communicating with the IRS and professionally handling your tax liabilities are just two of the services companies like Priority Tax Relief can offer.

No. The IRS’s Innocent Spouse Relief protects you from paying these additional taxes. However, this does not relieve you from household employment taxes, business taxes, individual joint responsibility payments etc. Priority Tax Relief helps you learn more about innocent spouse relief.

The most popular option to date would be an Offer In Compromise (OIC). At Priority Tax Relief, we help tax relief help become more accessible to taxpayers in need and help them understand how they can qualify for these options.

IRS tax liens are legal claims on your property when you do not settle your tax debts. The IRS usually sends out a notice when no payment has been made after a liability assessment. Find out more about tax liens with Priority Tax Relief.

Yes. Not only can the IRS put a claim on all your current property, tax liens can also affect any property or intangible or tangible assets that you obtain in the future. At Priority Tax Relief, we help you understand federal tax liens and how to communicate with the IRS.

 

Tax levies are the actual seizure of your property and are different from legal claims or tax liens. Settle your taxes before the IRS sends out a notice. Priority Tax Relief helps you understand tax levies and how you can avoid them.

Yes. Not only can they seize physical property but they can also legally take hold of the money in your bank account and other wages. To avoid this from happening, contact Priority Tax Relief now.

Your debt will, unfortunately, continue to grow and you will possibly lose a great number of your assets. It is definitely a scenario we do not wish to see happen to anyone, that’s why Priority Tax Relief makes sure that our help becomes within reach.

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