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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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My ex-wife and I incurred joint personal debt in the $250k

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My ex-wife and I incurred joint personal debt in the $250k range, of which I was unaware until February 2008. Once I discovered this, I immediately assumed control of all of our finances. While my ex insisted (and does till this day) that we should have declared bankruptcy, I felt a moral obligation to repay these debts. I made a hardship withdrawal from my 401k, and was able to pay enough to pay off the worst offenders (credit cards). I have the remainder of the dent, and continue to pay it off. At the time, I consulted an accountant as to how much money I should send to Federal and State to offset the tax burden. My ex recently finished her portion of the 2008 income taxes (which are being filed jointly), and the same accountant "discovered" we owe another $12,000 due to the penalties he did not factor in. Will my ex be held liable for her half? I am afraid she will not pay it, and I will have to pay the entire $12,000. (The decree says we are to "split the refund").
Hello tz,

Unfortunately, even though you plan to file a joint return for the year 2008, if there are taxes or penalties or interest that are due with that return, the IRS will hold each spouse jointly and wholly responsible for the payment of that tax debt. In other words, if they have to pursue collection of that debt, they would pursue both you and your wife, and would collect the amount due from either spouse who had the resources to pay the debt, or would place liens and/or levies on either spouse that had assets. They would not simply pursue each spouse for half of what was owed.

If you were to file a separate return from your former spouse, then the IRS would soley come after you for the tax, since the withdrawals were made from your 401k account. So by filing a joint return there is at least some hope for you that the IRS may collect at least a portion of this debt from your spouse. If you send in this tax bill without payment and without making payment arrangements, then the IRS would start collection activities against both you and your former spouse. If she has income from a job they could garnish her checks. They could also levy any bank accounts she has in her name and could place liens on any properties she owns. Of course the same holds true for your wages and assets. And here again, all of this is assuming that you even allow it this debt to go into collection rather than paying it up front or setting up a payment plan.

But if your basic inquiry is just to find out if your former spouse could be legally held liable for half of the taxes and penalties that will be due, the answer is no. The IRS leaves it up to the spouses to come up with the payment, and if they cannot do that then they will pursue collection from either spouse who has the assets they can collect on.

You are correct that the IRS is also not bound by stipulations regarding taxes that are made as part of a divorce decree. Your only recourse there might be in a civil case filed against your former spouse if she did not live up to her part of the agreement.

If this was helpful please press the Accept button.

Thank you tz, and best of luck to you in getting this resolved.



Merlo and other Tax Specialists are ready to help you
Hello tz,

Unfortunately, even though you plan to file a joint return for the year 2008, if there are taxes or penalties or interest that are due with that return, the IRS will hold each spouse jointly and wholly responsible for the payment of that tax debt. In other words, if they have to pursue collection of that debt, they would pursue both you and your wife, and would collect the amount due from either spouse who had the resources to pay the debt, or would place liens and/or levies on either spouse that had assets. They would not simply pursue each spouse for half of what was owed.

If you were to file a separate return from your former spouse, then the IRS would soley come after you for the tax, since the withdrawals were made from your 401k account. So by filing a joint return there is at least some hope for you that the IRS may collect at least a portion of this debt from your spouse. If you send in this tax bill without payment and without making payment arrangements, then the IRS would start collection activities against both you and your former spouse. If she has income from a job they could garnish her checks. They could also levy any bank accounts she has in her name and could place liens on any properties she owns. Of course the same holds true for your wages and assets. And here again, all of this is assuming that you even allow it this debt to go into collection rather than paying it up front or setting up a payment plan.

But if your basic inquiry is just to find out if your former spouse could be legally held liable for half of the taxes and penalties that will be due, the answer is no. The IRS leaves it up to the spouses to come up with the payment, and if they cannot do that then they will pursue collection from either spouse who has the assets they can collect on.

You are correct that the IRS is also not bound by stipulations regarding taxes that are made as part of a divorce decree. Your only recourse there might be in a civil case filed against your former spouse if she did not live up to her part of the agreement.

If this was helpful please press the Accept button.

Thank you tz, and best of luck to you in getting this resolved.