A woman going through a divorce thinking about dividing tax debt.
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Dividing tax debt during a divorce depends on when the debt was incurred, state laws and other factors. Responsibility for back taxes may be shared or assigned to one spouse, often based on whether the debt arose before or during the marriage. However, IRS rules may not align with a divorce court’s decision. A financial advisor can help clarify tax obligations and prepare you for potential financial impacts.
When dividing debt in a divorce, courts look at the type of debt and when it was incurred. Debts taken on during the marriage are typically considered shared, making both spouses liable.
Debts from before the marriage are usually treated as separate, with each spouse responsible for their own obligations.
Tax debt is often treated the same way. Whether the debt was accrued jointly or individually, and whether it occurred during the marriage, are important factors in determining responsibility.
How tax debt is divided depends on whether the state follows community property laws or equitable distribution principles. In community property states, marital debts, including tax debt, are generally split equally between spouses, regardless of income or contributions. The nine community property states are:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
In community property states, courts may decide that both spouses share the responsibility for any tax debt incurred during the marriage. This means the debt is typically divided equally, regardless of income differences or contributions.
In equitable distribution states, tax debt is divided based on what the court considers fair, not necessarily equal. Factors like each spouse’s financial situation, earning potential and contributions to the household are considered. As a result, one spouse may be assigned a larger share of the tax debt. This approach applies in all states except the nine that follow community property laws.
A divorce settlement may assign tax debt to one spouse, but the IRS can still hold both spouses jointly liable for tax debt if they filed jointly during the marriage. Even if a divorce decree states otherwise, the IRS can pursue payment from either party.
To reduce this risk, individuals can seek innocent spouse relief from the IRS. This provision relieves a spouse of responsibility for tax debt if their ex-spouse improperly reported or omitted income on a joint tax return without their knowledge.
To qualify, the requesting spouse must show they were unaware of the errors and that it would be unfair to hold them liable. The IRS considers factors like financial involvement, personal benefit and financial circumstances.
To apply, individuals must file IRS Form 8857, explaining their situation and including supporting documents. The IRS will review the application, considering the couple’s financial details and communication during the marriage.
A woman researching tax laws for divorce settlements.
Separation of liability relief allows joint filers to divide responsibility for understated tax liabilities between themselves and their ex-spouse.
The IRS assigns each spouse a portion of the tax debt based on their individual contributions and circumstances, offering a way to separate financial responsibility after a divorce or separation.
Unlike innocent spouse relief, this option is only available to those who are divorced, legally separated, or have lived apart from their spouse for at least 12 months.
To apply for separation of liability relief, individuals must submit IRS Form 8857. The IRS will review the application, considering factors such as each spouse’s financial contributions and their involvement in the tax reporting process.
Equitable relief is available for individuals facing unfair tax liability due to their spouse’s or ex-spouse’s actions, even if they were aware of the errors. This type of relief covers both understated tax liabilities and unpaid taxes, offering broader protection compared to other forms of relief.
This is different from separation of liability relief, which splits tax debt between spouses. Equitable relief applies when holding one spouse responsible would be unfair.
To qualify, the requesting spouse must demonstrate that holding them responsible for the tax debt would be unfair under the circumstances. The IRS considers factors such as financial hardship, the current financial situation of the requesting spouse and any evidence of abuse or deceit by the other spouse.
To apply for equitable relief, you must file IRS Form 8857. This form will allow you to explain your situation and provide evidence supporting your case.
A man comparing community property vs. equitable distribution states.
Dividing tax debt in a divorce can be difficult, especially with joint tax returns and IRS rules. Options like innocent spouse relief, separation of liability relief and equitable relief can help avoid unfair responsibility for a former spouse’s tax debt. A tax professional can guide you through these options.
A financial advisor can help optimize your investments for taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s tax return calculator with updated brackets and rates to see how your income, withholdings, deductions and credits will affect your next refund or balance due.
Heather Ochoa is a news writer at the Failsafe Podcast. She has been writing about politics, health, business, parenting and finance for over a decade. She also loves to go hiking in her free time.
