Who Pays Back Taxes After a Divorce?

How tax debt is divided in a divorce

Tax debt is treated the same as any other kind of debt during a divorce, and state law will determine how it is divided. Depending on your state, all of the tax debt may be divided equally, or it could be separated based on whether the debt was acquired before or during the marriage.

Like any other debt, analyzing tax debt during a divorce takes into account “when it was incurred, why it was incurred and who benefited from it,” according to Renee Bauer, divorce attorney at Happy Even After Family Law in Connecticut.

“Courts consider whether the tax liability arose during the marriage, whether it stemmed from joint decisions or one spouse’s conduct, and whether one party controlled the finances or had greater access to information,” she continued.

If you live in a state where the date the debt was accrued matters, then debt accrued before the marriage will remain with the spouse who originally owed the debt. Debts that were accrued during the marriage are split equally between the two spouses.

» FIND: How to get help with back taxes

IRS rules and divorce decrees

However, the IRS is not bound by a divorce decree and may still attempt to collect the full amount from either spouse.

Bauer explained that if the tax debt is joint, the IRS can pursue the other spouse regardless of what the divorce judgment says, leading to a second legal battle where the non-paying party may be in contempt of court or required to indemnify the other.

While the injured party can file for innocent spouse relief, that doesn't guarantee the IRS won’t still hold them responsible.

For example, a judge may say the wife must pay 75% of the tax debt and the husband 25%. But if the wife doesn’t pay her share, the IRS can pursue the husband for the full amount. The husband can then take the wife to court for failure to comply with the divorce decree.

Release of liability

The spouse who was deemed not liable in the divorce proceedings can legally remove their liability with the IRS under certain circumstances:

• They filed a joint return with their spouse.
• Their taxes were understated due to errors on their return.
• They didn't know about the errors.
• They’re no longer married or living with their spouse.

6 relief options for tax debt after divorce

If you’re responsible for the payment of back taxes and don’t feel you should be legally responsible or are unable to pay, you have a few options.

1. Innocent spouse relief

You may qualify for innocent spouse relief if you can prove you were unaware of the errors in the tax return. For example, if your spouse had unclaimed income that you were unaware of.

To qualify, you must:

• Have filed a joint return with your spouse
• Prove your taxes were understated due to errors on your return
• Prove you didn't know about the errors
• Live in a community property state

2. Separation of liability relief

Similar to the innocent spouse relief, you must prove there were errors on the tax return that you were unaware of. In this case, you must no longer be living with your spouse.

3. Equitable relief

Equitable relief is for those whose spouses made an error on the return, but it would be unfair to hold you responsible. You may qualify if:

• You aren't eligible for innocent spouse relief or separation of liability relief.
• You filed a joint return with your spouse.
• You and your spouse didn't transfer assets to commit fraud or avoid taxes.
• You didn't knowingly file a fraudulent return.
• Based on all the facts and circumstances, it would be unfair to hold you liable for the unpaid or understated tax.

With a few exceptions, note that you can’t qualify for relief on taxes due on your own income or assets.

» MORE: Best tax relief companies

4. Injured spouse relief

While this isn’t tax relief exactly, it may help get you some money back if your tax return was seized to repay your spouse's debts you aren’t responsible for. You may qualify if:

• You filed a joint return with your spouse.
• Your tax refund was applied to your spouse's overdue debts.
• You weren't responsible for the debt.

5. Installment agreement

You can set up a payment plan with the IRS if you are having difficulty paying your balance. Setting up a payment plan can help avoid additional penalties and interest. 

6. Offer in compromise

If you don’t believe you have the ability to pay off the tax debt, even with a payment plan, you may be able to settle for less than you owe using an offer in compromise. You may qualify if:

• You filed all required tax returns and made all required estimated payments.
• You aren't in an open bankruptcy proceeding.
• You have a valid extension for a current-year return (if applying for the current year).
• You are an employer and made tax deposits for the current and past two quarters before you apply.

Note that if you are divorced, your offer in compromise doesn’t also apply to your ex-spouse. If you receive a settlement, they will still owe the remaining unpaid taxes.

Legal exceptions and considerations

There are circumstances when a judge may decide that an even split of the tax debt is unfair. This can happen for several reasons.

1. Innocent spouse: If you were unaware of errors on your tax return, and it’s deemed that a reasonable person would not have knowledge of the errors, then a judge may determine that you aren’t responsible for the debt.

   You may also qualify for innocent spouse relief if you were aware of the errors but are a survivor of domestic abuse and were forced to sign a return you knew was fraudulent or accepted the fraud due to fear.

2. Unequal earnings: If one spouse earns significantly more than the other, the higher-earning spouse may be deemed responsible for a larger share of the debt.
3. Debt origin: In most states, debts incurred before the marriage remain the responsibility of the spouse who brought them into the marriage. However, this rule doesn’t apply in community property states:
   • Arizona
   • California
   • Idaho
   • Louisiana
   • Nevada
   • New Mexico
   • Texas
   • Washington
   • Wisconsin

Filing taxes post-divorce

If you’re legally separated or divorced at the end of the year, you must file your taxes as “single” or “head of household.” However, if you are still legally married, you can file either “married filing jointly” or “married filing separately.”

If you file “married filing jointly,” you'll report the total combined income and deductions. This often results in the lowest tax liability. However, if you file “married filing separately,” you’ll report only your own income and any deductions you qualify for as an individual.

Whether you are legally married or not at the end of the year, you may be able to file “head of household” if the following apply:

• Your spouse didn't live in your home for the last six months of the year.
• You paid more than half the cost of keeping up your home for the year.
• Your home was the main home of your dependent child for more than half the year.