Should You Marry Someone With Debt
First, you must consider if you live in a common-law state. Marrying someone with debt may affect you financially for years to come. However, there are legal documents that can be filed to protect yourself from your future spouses debt.
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Tax Attorney Patrick Walter Guest Blogs On The Challenges Faced By Divorcing Couples Who Owe Back Taxes
A rough divorce can cause considerable stress and trauma, leaving both the spouses scarred for years. Divorcing couples have too much on their plate and must split property, divide debts, and resolve custody issues. Additionally, to avoid tax problems with divorce, couples who have been filing taxes jointly must decide their respective tax obligations. This is especially important for couples who owe back taxes or face IRS and tax related problems at the time of the divorce. Determining who owes what helps avoid additional tax obligations.
Failure to apportion back taxes between the spouses can complicate things, often exacerbating the trauma experienced by both the parties. Divorcing couples must also understand how their tax debt will be considered, and the effect of separation on their tax filing status. In this post, we cover these two topics. Take a look.
- Tax Attorney Patrick Walter guest blogs on the challenges faced by divorcing couples who owe back taxes.
- Tax Debt is Treated Like any Other Debt in a Divorce
- Legal Exceptions to Equal Division of Tax Debt
- When Joint Tax Debt is Divided Unequally
- The IRS May Not Honor a Divorce Agreement
- Filing Taxes After Divorce: Massachusetts vs. Other States
What Happens When You Marry Someone Who Owes Taxes
Each case is unique and must be reviewed by a tax debt attorney who is familiar with the process of liberating a non-responsible spouse from the tax debt. There are three options for relief for which you may qualify. Some considerations include whether you filed a joint or separate return, if you are widowed, are divorced, your health status at the time of filing, and other circumstances.
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Tax Obligations For Widows And Widowers
When a spouse dies, debt from tax returns that were filed jointly falls under the responsibility of the surviving spouse. Filing a joint return means that each individual is held liable for any back taxes, no matter who caused the debt.
The only way to not be held liable is by filing taxes individually instead of jointly. The executor for the deceased partner is responsible for the final tax returns filing. If taxes are owed, the IRS may use the spouses estate to pay off the debt. If the estate does not cover the whole tax liability, the surviving spouse will be liable for the remaining portion.
Failing Relationships Make For Messy Tax Situations
If you want to qualify for any of the statuses listed above, be ready for the IRS to get into your business. Significant benefit means the IRS will look at your life to see if you got a gift or something else of value. If you want separation of liability, then youll need to show youre really separated.
In addition, when you file for Innocent Spouse, they will contact said spouse to get any relevant information. In other words, your former estranged spouse may try to use the opportunity to make sure youre on the hook, too. If they can show that you knew, then the best you can hope for is a separation of liability.
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Can The Irs Seize My House Or Assets When My Spouse Owes Money
Yes. If you filed jointly, the IRS could seize your assets even if your spouse is the one who owes money. The IRS knows that you and your spouse share assets and liabilities, and they do not make a distinction, especially if you file together.
Fortunately, the IRS is more likely to garnish wages or issue a tax lien than it is to seize your house or physical property.
If you do not want the IRS involved in your bank account or other assets, file separately and keep certain assets in your name.
Couples share a lot when they get married, but each spouse is entitled to keep some things separate, including taxes and tax liability.
Beware Tax Cheater Spouses
There is one potential huge drawback to filing jointly: As a general rule, when a married couple files a joint return each spouse is jointly and individually liable for the entire tax owed on the return. This means that either spouse can be required to pay the tax due, plus any interest, penalties, and fines.
A spouse can claim “innocent spouse relief” and avoid personally paying the other spouse’s taxes if he or she can show the IRS that: the understatement of tax was due to the other spouse, and the spouse did not know, or have reason to know, that there was an understatement of tax when he or she signed the joint return. However, both propositions can be hard to prove. You’ll avoid being personally responsible for your spouse’s taxes if you file a separate return. This is something you should seriously consider if you know your spouse cheats on his or her taxes.
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What Happens If A Deceased Person Owes Taxes
If a deceased person owes taxes the Estate can be pursued by the IRS until the outstanding amounts are paid. The Collection Statute Expiration Date for tax collection is roughly 10 years — meaning the IRS can continue to pursue the Estate for that length of time. In some cases, the IRS can request to extend this deadline.
The Administrator of the Estate, or another representative of the deceased, will need to report all income made during the year prior to their death and file the necessary deceased tax return. The Administrator will be responsible for gathering all of the deceased persons financial details, though they can request previous tax transcripts from the IRS using Form 4506-T.
In most cases, the appropriate taxes can be filed using Form 1040 to report income on behalf of the deceased. Though, an income tax return may need to be filed for the Estate as well if it generated more than $600 before being distributed to heirs.
Who Is Responsible For Paying Taxes For A Deceased Person
The person responsible for paying taxes on behalf of a deceased person will typically be named within the Estate Plan. This person will be in charge of settling the Estate and will have access to the information and accounts necessary to pay the outstanding taxes. They will also be in charge of coordinating any refunds, if applicable. There are a few different ways this responsibility can be managed.
The Administrator of the Estate can be placed in charge of paying a deceased persons taxes — as they will typically be the one managing outstanding expenses, closing necessary accounts, and distributing inheritances as specified.
The deceased may have an Appointed Legal Representative to handle tax affairs. This could be an Estate Planning lawyer or family attorney. They will also have access to financial information and be able to take care of outstanding taxes in a quick manner.
If the decedent was married their Surviving Spouse may also take over tax duties, especially if they are filing jointly for the year. Note that taxes can be filed jointly for the year the death occurred and potentially the previous year . The surviving spouse would need to note this on the tax paperwork.
In cases without an Estate Plan, spouse, or appointed legal representative the responsibility will typically fall on a loved one or Next of Kin. This person will need to note that they are acting as a personal representative on behalf of the deceased when filing any documents with the IRS.
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Levy And Other Actions Prohibited And The Irss Time To Collect Is Suspended
Unless collection will be jeopardized by delay, the IRS is generally prohibited from collecting by levy, a proceeding in court against a requesting spouse, and the IRSâs time to collect is suspended or prolonged if a qualifying claim for innocent spouse relief is made. This suspension can last from the date the claim is filed until the earlier of the date a waiver is filed, or until the expiration of the 90-day period for petitioning the Tax Court, or if a Tax Court petition is filed, when the Tax Court decision becomes final, plus, in each instance, an additional 60 days is added. Refer to Topic No. 160, Statute Expiration Date.
Debt Incurred Before During And After Marriage
Any tax debt your spouse incurred before you got married belongs to your spouse alone. If the IRS intercepts your tax refund, you can apply for Injured Spouse Status and get it back.
You may be liable for tax debt incurred during your marriage unless you take steps to limit your liability. You can protect yourself by filing separately or applying for Innocent Spouse Status.
Divorce frees you from tax debt your spouse incurs after your marriage. If your divorce has not been finalized, be sure to file separately. You can also assume partial liability by applying for Separation of Liability.
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Talk To A Tax Attorney
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Should You Change Your Filing Status
You may want to consider doing your taxes as married filing separately if your spouse owes back taxes. Taking this route will save you from the trouble of filing Form 8379 as an injured spouse. Although this form does give you the chance to get back your share of the joint refund from the IRS, you can avoid having your money collected in the first place by filing separately from your spouse. There are a few other situations where you may qualify to file Form 8379 as an injured spouse, including cases where you and your spouses tax refund may be applied to overdue state taxes and debts related to state unemployment compensation, child support and student loans.
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Joint Vs Separate Returns
One exception exists exists to this general rule. if you file a joint married return with your husband and he owes taxes from before you were married, the IRS will most likely keep the entirety of any refund to satisfy his debt, assuming the debt is more than the refund. Otherwise, it will keep a portion equal to the taxes owed. The IRS won’t automatically recognize that half the refund is yours. If you file a separate married return in these circumstances, the IRS typically won’t take your personal refund. The downside to filing separately is that you may lose out on some tax breaks. Taxpayers who file separate married returns typically pay more in taxes for a number of reasons, one of which is the fact that they can’t qualify for certain credits, such as those associated with educational expenses and dependent care.
If My Significant Other Has Unpaid Taxes From Years Ago And We Get Married Could I Be Held Liable For His Debts I Have Property Etc I Own
Not all taxpayers want to share their spouse’s tax debt. The Internal Revenue Service respects this and there are ways you can avoid the repercussions of back taxes your husband hasn’t paid. The easiest way is to avoid filing a joint married return with him, but this may not work in all cases.
With one or two exceptions, spouses are not responsible for premarital tax liabilities owed by their partner. If your husband’s tax debt is the result of returns he filed before you were married, you typically have no obligation to pay them.
One exception exists to this general rule. if you file a joint married return with your husband and he owes taxes from before you were married, the IRS will most likely keep the entirety of any refund to satisfy his debt, assuming the debt is more than the refund. Otherwise, it will keep a portion equal to the taxes owed. The IRS won’t automatically recognize that half the refund is yours.
If you file a separate married return in these circumstances, the IRS typically won’t take your personal refund. The downside to filing separately is that you may lose out on some tax breaks. Taxpayers who file separate married returns typically pay more in taxes for a number of reasons, one of which is the fact that they can’t qualify for certain credits, such as those associated with educational expenses and dependent care.
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Can The Wages Of A Wife Be Garnished To Pay The Taxes Of Her Husband
You said I do and promised to stay with your spouse for better or worse. Now it turns out that part of the “worse” is money your spouse owes the IRS for back taxes. Youre not the first person to ask the question, If my spouse owes back taxes, am I liable? The IRS recognizes this issue and provides a way to pay your taxes without being penalized for marrying someone who has IRS debt.
TL DR
Any spouse who loses part of her refund because of her spouses tax debt has the right to get back her share of the joint refund by filing as an “injured spouse.”
What To Do If One Spouse Owes Money And The Other Does Not
When it comes time for a couple to prepare their individual tax filings, there are several ways to avoid a one refund, one owing situation. When one spouse owes money to the government while the other does not, consider sharing or transferring credits. It is important to note the Canada Revenue Agency doesnt let one spouses refund offset a balance owing for the other spouse.
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My Spouse Lied To The Irs And I Got The Bill
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What might happen?
You got your mail today. There is a letter from the IRS. It isn’t tax refund time so it can’t be anything good. You are tempted to throw it away, but you open it anyway. It is a “Notice of Proposed Deficiency” that says your spouse underreported income to the IRS last year. You separated a few weeks ago. You now owe $1,000 and know you can’t afford to pay it back.
Is there anything you can do?
Most of the time spouses filing a joint tax return are both held responsible for any tax debts that come from that tax return. A tax debt can be from an underpayment of taxes or an understatement of taxes. Understatements are when the tax return says that you owe one amount and you actually owe more. If your tax return does not report all your income or claims a credit you are not supposed to take, this can cause an understatement of tax. The IRS can ask for payment from just one spouse or from both. The IRS calls this joint and several liability. This usually becomes an issue when married couples separate or divorce.
Important Note: Filing jointly is an election. The IRS does not require married couples to file jointly. You can avoid joint liability by filing separately.
What kinds of relief might help me?
I already applied for relief but I was rejected!What are the main differences between these types of relief?Are there limits on when the relief is available?
Are There Any Benefits To Married Filing Separately
Separate tax returns may give you a higher tax with a higher tax rate. The standard deduction for separate filers is far lower than that offered to joint filers. In 2020, married filing separately taxpayers only receive a standard deduction of $ 12,400 compared to the $ 24,800 offered to those who filed jointly.
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How To File Taxes
As a married person, should you file separately or jointly? Well, it all depends on the two people involved — your incomes, your possible deductions and credits, and so on. Most couples find that filing jointly makes the most financial sense, but in some circumstances, filing separately will leave you with a smaller total tax bill.
Note that when you file jointly with your spouse, you’re both taking joint responsibility for the information on the return and for the tax obligation. If there are any penalties or interest charges levied, you’re both on the hook for them. The separate filing option is also smart if you’re not comfortable with your spouse’s financial dealings or behaviors.
The information above can help you think about which filing status you’ll choose, but wait to decide until you prepare your return both ways, to see which will save you more money. This is where using tax-prep software can help.
