How the tax debt is divided during a divorce

A woman going through a divorce thinking about splitting the tax debt.

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Dividing tax debt during a divorce depends on when the debt was incurred, state laws, and other factors. Liability for back taxes can be shared or assigned to one spouse, often depending on whether the debt arose before or during the marriage. However, the IRS rules may not be aligned with a divorce court’s decision. A financial advisor can help clarify tax obligations and prepare you for potential financial impacts.

when dividing the debt in a divorcecourts look at the type of debt and when it was incurred. Debts incurred during marriage are usually considered shared, making both spouses responsible.

Premarital debts 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 incurred jointly or individually, 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 debt, are generally divided equally between spouses, regardless of income or contributions. The nine community property states are:

Arizona
California
Idaho
Louisiana
snowfall
New Mexico
Texas
Washington
Wisconsin

In community property states, courts can rule that both spouses share responsibility for any tax debt incurred during the marriage. This means that the debt is usually split equally, regardless of differences in income or contributions.

In equitable distribution states, the tax debt is divided based on what the court deems fair, not necessarily equal. Factors such as each spouse’s financial situation, earning potential and household contributions are taken into account. As a result, one spouse may be assigned a larger share of the tax debt. This approach applies to all but nine states that follow community property laws.

A divorce settlement can assign the tax debt to one spouse, but the IRS can still hold both spouses jointly liable for the tax debt if filed jointly during the marriage. Even if a divorce decree states otherwise, the IRS can seek payment from either party.

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

To qualify, the applicant spouse must show that they were unaware of the mistakes and that it would be unfair to hold them responsible. The IRS considers factors such as financial participation, personal benefit and financial circumstances.

To apply, people must file IRS Form 8857, explaining their situation and including supporting documents. The IRS will review the application, taking into account the couple’s financial details and communication during the marriage.

A woman researching tax laws for divorce settlements.

Separation of responsibility The relief allows joint filers to split responsibility for understated tax liabilities between themselves and their ex-spouse.

The IRS assigns each spouse a share of the tax debt based on their individual contributions and circumstances, providing 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 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 reporting process.

Equitable relief is available to individuals who face unfair tax liability due to the actions of their spouse or ex-spouse, even if they were aware of the mistakes. 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 the separation of liability exemption, which divides the tax liability between the spouses. Equitable relief applies where a spouse’s liability would be unfair.

In order to qualify, the applicant spouse must demonstrate that making them liable for the tax debt would be unfair in the circumstances. The IRS considers factors such as financial hardship, the applicant spouse’s current financial situation, and any evidence of abuse or deception by the other spouse.

To claim equitable relief, you must file IRS Form 8857. This form will allow you to explain your situation and provide evidence to support your case.

A man who compares community property with states of equitable distribution.

Dividing tax debt in a divorce can be difficult, especially with joint tax returns and IRS rules. Options such as innocent spouse relief, separation of liability, and equitable relief can help avoid unfair liability 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 tax purposes. Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool connects you with verified financial advisors serving your area, and you can make a free introductory call with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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