How to divide tax debt during divorce
A woman going through a divorce is considering dividing her tax debt.

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The division of tax debt during divorce depends on when the debt was incurred, state laws and other factors. The liability for back taxes can be shared or divided between the spouses, often depending on whether the debt was incurred before or during the marriage. However, IRS rules may be inconsistent with divorce court rulings. A financial advisor can help clarify your tax obligations and help you prepare for the potential financial impact.

When dividing debt in a divorce, the court will consider the type of debt and when it occurred. Debts incurred during a marriage are often considered joint, making both spouses responsible.

Premarital debts are generally considered separate, with each spouse responsible for their respective obligations.

Tax debt is generally treated the same way. Whether the debt was jointly or individually borne, and whether it occurred during the marriage, are important factors in determining liability.

How the 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 debts, are generally divided equally between spouses regardless of income or contributions. The nine community property states are:

In community property states, the court may decide that both spouses are jointly responsible for any tax debt incurred during the marriage. This means debts are generally divided equally, regardless of differences in income or contributions.

In equitable distribution states, tax debts are divided based on what the court deems to be fair (not necessarily equal). Factors such as each spouse's financial situation, earning potential and contribution to the family are considered. Therefore, one spouse may bear a larger share of the tax debt. This method works in all but nine states that follow community property laws.

A divorce settlement can allocate the tax debt to one spouse, but if the spouses filed joint returns during the marriage, the IRS can still hold both parties jointly responsible for the tax debt. The IRS can pursue payments from either party even if the divorce order says otherwise.

To reduce this risk, individuals can seek innocent spouse relief from the IRS. This provision relieves a spouse from tax liability if the former spouse improperly reported or omitted income on a joint tax return without their knowledge.

To qualify, the requesting spouse must prove they were unaware of the errors and that it would be unfair to hold them responsible. The IRS considers factors such as financial involvement, personal interests and financial status.

To apply, individuals must submit IRS Form 8857, explaining their situation and including supporting documentation. The IRS will review the application, taking into account the couple's financial details and communications during the marriage.

A woman is researching the tax laws of a divorce settlement.
A woman is researching the tax laws of a divorce settlement.

The separation of duties relief allows joint filers to allocate responsibility for an underreported tax liability between themselves and their ex-spouse.

The IRS provides a way to separate financial responsibilities after a divorce or separation by allocating a portion of the tax debt to each spouse based on their individual contributions and circumstances.

Unlike innocent spouse relief, this option is only available to people who are divorced, legally separated, or have been separated from their spouse for at least 12 months.

To claim separation of duties relief, an individual must file IRS Form 8857. The IRS will review the application, taking into account factors such as each spouse's financial contributions and their participation in the tax filing process.

Fair relief may be available to individuals who face unfair tax liabilities as a result of their spouse or ex-spouse’s actions, even if they knew of the wrongs. This type of relief covers underreported tax liabilities and unpaid taxes, providing broader protection than other forms of relief.

This is different from the separation of duties deduction, which splits the tax debt between spouses. Equitable remedies apply when it is unfair to hold one spouse responsible.

To qualify, the requesting spouse must prove that it would be unfair to subject them to the tax debt under the circumstances. The IRS considers factors such as financial hardship, the current financial situation of the filing spouse, and any evidence of abuse or deception 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 to support your case.

One compares community property to a state of equitable distribution.
One compares community property to a state of equitable distribution.

Splitting tax debt in a divorce can be difficult, especially with joint tax returns and IRS rules. Options such as innocent spouse relief, separation of duties relief, and equitable relief can help avoid unfair liability for your ex-spouse’s tax debts. A tax professional can guide you through these options.

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