When you file jointly on a tax return both you and your spouse are held liable for any taxes due to the government. This is called joint and several liability. This can also apply to any tax the IRS determines in addition to your return, even if the tax is from income, deductions, or credits belonging only to your spouse. This liability can still hold after a divorce for the tax years you filed jointly. Fortunately, there is a reprieve for the former spouse, Separation of Liability Relief.
Separation of Liability Relief allocates the appropriate taxes, interest, and penalties between the former spouses. In order to be lifted of the legally binding liability, an applicant must file a Form 8857 and show that:
- they are no longer married to, or legally separated, from the spouse on their joint return;
- or was not a part of the spouse’s household* in the last year but still had filed together on the return.
*The IRS defines being of the same household if the individuals:
- Live together in the same dwelling;
- Are living separately as a temporary situation and they are not estranged; or
- Either spouse has temporarily moved out and the household is being maintained with the reasonable expectation that they return.
Even if an individual meets either of the requirements, they could still be denied the Separation of Liability Relief if:
- The IRS proves that either parties had transferred assets to each other, knowingly attempting to defraud the IRS, a former spouse, or a business partner;
- The IRS is able to prove that the applicant was aware of the errors in their former spouse’s income, deductions, expenses or credits that led to the discrepancy; or
- The applicant received property from their former spouse as a means to avoid paying taxes.
Divorce is hard enough as it is without adding additional complications of tax liability into the mix. It can be even harder when the liability is from your former spouse. No one wants to help pay their ex’s debt so it is worth checking with a tax lawyer to see if you can qualify for Separation of Liability Relief.