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IRS Debt and Divorce Settlements

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IRS Debt and Divorce Settlements

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IRS Debt and Divorce Settlements

Divorces are one of the most stressful, tumultuous and, and possibly, expensive events that anyone can experience. Not only is there the stress of the dissolution of the marriage, but couples must determine such things as custody of children, if any, division of assets and who assumes responsibility for any debts incurred during the marriage. This includes amounts owed to the IRS.

In general courts divide assets and debt accumulated during the marriage either equitably or equally depending on the state of residence. In most states, judges will attempt to divide net assets equitably, or fairly, and this process takes into account such things as the needs of the individuals, future employment and earning capabilities, and financial contributions during the course of the marriage. In community property states, such as Texas, if a couple cannot decide on the division of net assets, the judge will split them evenly - 50/50 - right down the middle.

While divorce settlements may divide debts incurred during the marriage, creditors, and this includes the IRS, are under no obligation to honor the terms of the divorce settlement. Debts incurred during a marriage are considered joint and several - meaning that the debts are the responsibility of both parties even after a divorce. And in the event one party defaults on a debt, the creditor, including the IRS, will assert the remaining debt against the non-defaulting spouse. This can, of course cause a significant financial burden to the non-defaulting party. Thankfully, the IRS provides a relief provision to this situation but only under certain circumstances.

IRS Debt and Divorce
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Innocent Spouse Relief

The IRS provides a provision for relief of taxes owed incurred during a marriage called innocent spouse relief. In order to qualify for innocent spouse relief the following conditions must be met:

  • You filed a joint return with your spouse

  • Your taxes were understated due to errors on your return

  • You didn't know about the errors

  • You live in a community property state

Errors on the return would be caused by the following:

  • Unreported income

  • Incorrect deductions and credits

  • Incorrect values given to errors

You are not eligible for innocent spouse relief if any of the following conditions exist:

  • You signed an offer in compromise with the IRS

  • You signed a closing agreement with the IRS covering the same taxes

  • A court made a final decision denying you relief

  • You participated in a related court proceeding and didn't ask for relief

The key takeaway of this provision is the lack of knowledge of the errors contained on the tax return. If you did not, or have any reason to know of the errors contained on the return you may be eligible for innocent spouse relief.

If you find yourself in the situation of owing taxes incurred during a former marriage, please call the team at Liberty Tax Defenders to see if you qualify for innocent spouse relief. 817.995.5008 and

To your success!

P.S. Make sure you get your FREE copy of our SPECIAL REPORT: "The 7 Secrets The IRS Does NOT Want You To Know!" (simply click on the link in the previous sentence, scroll down to the second section of our home page, and download your copy today!)

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