Full question:
My wife and I live in Los Angeles, California. If we obtain a legal separation (but not a divorce) will there ever be a time when I am not responsible for her debts. These debts have been hidden to me and we have never filed joint income tax returns (always filing 'married, filing separately')? My wife claims that I will not be responsible for her debts, including IRS debts, after one year but I have a hard time believing this is accurate.
- Category: Divorce
- Subcategory: Legal Separation
- Date:
- State: California
Answer:
Generally, marriage alone doesn't make both spouses personally liable for a debt. Liability on contracts such as home loans and credit cards arises by agreement between the creditor and the debtor, such as by being a cosigner, authorized user, or joint account holder. Only persons who signed the loan or credit application are liable for the debt. A joint tax return, however, makes both spouses liable for the total of the tax due.
When married taxpayers file a joint return, both taxpayers are jointly and severally liable for the tax and any additions to tax, interest, or penalties that arise as a result of the joint return even if they later divorce. Joint and several liability means that each taxpayer is legally responsible for the entire amount owed. The IRS will attempt to collect from either spouse even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns. One spouse may be held responsible for all the tax due even if the other spouse earned all the income or claimed improper deductions or credits. In some cases, a spouse can get relief from joint and several liability.
There are three types of relief from joint and several liability for spouses who filed joint returns:
1. Innocent Spouse Relief for additional tax you owe because your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
2. Relief by Separation of Liability provides for the allocation of additional tax owed between you and your spouse or former spouse because an item was not reported properly on a joint return. The tax allocated to you is the amount you are responsible for.
3. Equitable Relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax remains unpaid.
Innocent spouse is a term used as a basis for requests for relief from joint and several liability for understatement of income on a joint federal tax return and from liability arising from community property. It generally applies to a spouse who was not aware of the mistake and received no benefit from it. An individual may be found not liable for tax underpayment (including interest, penalties and other amounts) for a tax year if a joint return was filed for the tax year; there is an understatement of tax on the return that is attributable to an erroneous item by the other spouse; a taxpayer establishes that in signing the return he/she did not know and had no reason to know of the understatement; taking into account all of the facts and circumstances, it would be inequitable to hold the taxpayer liable for the deficiency attributable to the understatement; and a taxpayer elects the benefits of this provision, on the form that the IRS prescribes (Form 8857) , no later than the date that is two years after the date the IRS has begun collection activities with respect to the taxpayer. The IRS will consider whether an individual received a significant benefit either directly or indirectly, from the understatement; whether your spouse (or former spouse) deserted you; whether you and your spouse have been divorced or separated; and whether you received a benefit on the return from the understatement. Some states have also enacted similar laws, which vary by state, providing relief for innocent spouse taxpayers.
If you have filed separate tax returns in a community property state, such as California, equitable relief may be available under §66(c). In some cases, you must have been living with your spouse 12 months before filing the request for equitable relief in order for it to be granted.
For further discussion, please see:
http://www.irs.gov/individuals/article/0,,id=130523,00.html
http://www.irs.gov/individuals/article/0,,id=130518,00.html
Debts incurred by either spouse after the date of separation but before entry of judgment of dissolution of marriage or legal separation of the parties are treated as follows: 1) debts incurred for the common necessaries of life of either spouse or of children of the marriage for whom support may be ordered, in the absence of court order or written agreement, shall be confirmed to either spouse according to their needs and abilities to pay at the time the debt was incurred; 2) debt incurred by either spouse for nonnecessaries are considered separate debts. (Fam. Code, § 2623.) Debts incurred by either spouse after entry of a judgment of dissolution of marriage but before termination of the marital status or after entry of a judgment of legal separation shall be separate debts. (Fam. Code, § 2624.)
Please see also:
http://www.leginfo.ca.gov/cgi-bin/displaycode?section=fam&group=02001-03000&file=2620-2628
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
