“The female praying mantis devours the male within minutes after mating,
while the human female prefers to stretch it out over a lifetime”
Text message from my wife
One of the great tragedies in our society today is the number of divorces that occur every year. I recently read that over 50% of all marriages end in divorce and that this rate is increasing. There are many reasons for this, including financial problems, adultery, incompatibility, etc. This has given rise to the popular belief that premarital cohabitation is an acceptable alternative to the sacred institution of marriage.
The idea that marriage is a lifelong religious covenant and not merely a temporary civil contract is unpopular but it doesn’t have to be.
While I am not a marriage counselor, I am asked on a daily basis what to do about possible new marriages when one partner has a tax liability from a prior marriage. This can be a complicated issue for both partners but with proper planning can be overcome.
- Innocent Spouse Relief
Let me begin by stating that Congress continues to significantly expand tax relief for innocent spouses. The requirements are now fairly clear but relief still depends on the facts and circumstances of each case. This requires a comprehensive analysis as there are many kinds of innocent spouse relief, which can be full or partial, and can even result in refunds. However, this requires a legal analysis that should be handled by a tax attorney and not an accountant or enrolled agent. There are simply too many kinds of relief and too many application procedures for a non-specialist to handle.
People often tell me that their divorce decree may require the former spouse to pay any taxes that are owed. Unfortunately income taxes are a federal liability. A state court divorce decree cannot change the fact that both spouses may be liable under federal tax law for the taxes due under a joint return. Thus the state law divorce decree only gives one spouse the right to sue the other for nonpayment, hardly a satisfying remedy when the IRS is at your door because the ex didn’t pay.
Also, the tax law now allows a spouse to receive partial relief. In the past it may have been an all or nothing situation. But now the new regulations clearly provide partial relief under the several types of claims for innocent spouse treatment.
In addition, an innocent spouse can now be relieved of liability in cases of
undue hardship, though an IRS agent is the one who decides if there is undue hardship. In my experience, IRS agents have a hard time spelling undue hardship, much less seeing it. Thankfully, if the IRS refuses to grant relief, innocent spouse cases are now reviewable by the courts.
Finally, a couple which has filed a joint return can later elect to be liable only for
the federal taxes arising on their separate share of the tax liability, as if they had filed separate returns. This can be a big deal, and it can create fairness between the parties.
- New Marriages
I am often told that new couples don’t want to get married because they don’t want the new spouse to be tagged with their old tax liability from the prior marriage. They are concerned that the new spouse’s income and even their assets could be seized by the IRS to pay taxes owed by the ex. So they choose to cohabitate and put off having children until they are granted innocent spouse relief, or the old spouse pays the old tax debt, or in some cases until the statute of limitations runs.
There is no need for this. The parties can take certain actions before and even during a new marriage to prevent the IRS from seizing the income or the assets of the new spouse.
So here’s the deal. If you are involved in a divorce, you must be aware of the risk that past tax liabilities may continue to follow you. Also be aware that you may not even know about this tax liability (say your ex is audited after the divorce and the IRS finds unreported income or decides to deny deductions on prior returns). You must protect yourself and your family and you can do so if you plan early on. If you remarry, ask an attorney to consider keeping the tax risk of the old marriage away from the assets of your new spouse.
So there is no need to delay a new marriage and children. If you plan early, this is a solvable problem.