Even though Florida is a no-fault divorce state, issues of fault or wrong-doing often do come up in Florida divorces, regarding time-sharing, property and debt division, alimony and other issues in the case. This post, however, does not focus on fault or innocence in those contexts, but rather on relief that is sometimes available, and responsibility that can arise, when spouses file a joint tax return, and the IRS determines there are problems with the return and comes after the couple.
One caveat to mention at the outset — this post is intended to raise issues you should be aware of and to point you in the direction of seeking tax advice if these issues are present in your case, not to provide any tax advice. I practiced in the area of tax law earlier in my career, but it is not my focus any longer, and tax law, like most types of law, is something that requires specialized knowledge and experience. One of the provisions you will see in many settlement agreements or pre-nuptial agreements, is a paragraph or clause acknowledging that neither party received tax advice from their family law attorney. Many attorneys these days specialize in one area of law.
Innocent spouse relief is relief that can be available when spouses file a joint tax return, the IRS determines for example that there has been under-reporting and under-payment of income tax, and then goes after the couple for unpaid taxes, penalties and interest. If the IRS determines there has been criminal fraud, the spouses can also be subject to criminal tax fraud charges. One spouse in this type of a situation may think, I signed the return but it was my spouse’s business; he/she determined what the income was and handled the tax return; I really didn’t know what was going on with the taxes or the business. There is a statute which provides for “innocent spouse relief”, and there can be situations where the IRS determines that one spouse is innocent and not responsible.
It has been many years since I represented a client in a claim for innocent spouse relief, and as mentioned, if possible responsibility for something in a joint tax return is an issue for you, you should consult with your tax adviser or ask your family law attorney for a referral to a tax adviser. At the time I handled the case, however, the IRS’ view of what did and did not constitute an innocent spouse was that if you had the benefit of the income, saw all the items that must have been purchased with something, then you may not be an innocent spouse. If you have concerns about something possibly in a joint tax return, or really in any family law case where there is something in a joint tax return about which you are not fully informed and the amounts involved are not inconsequential, it makes sense to raise this issue with your family law attorney and to seek advice from an accountant or tax attorney. If there are errors in a return, or there has been criminal conduct, there may be steps you should take proactively to protect yourself. Another planning issue is whether to file a joint return, for example if you have a divorce pending but will not have a divorce order before the end of the year.
More blog posts:
Navigating A High Net-Worth, Contested Florida Divorce (March 22, 2012)
“Mandatory Discovery” for Your Florida Family Law Case (September 30, 2012)