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How Divorce Affects Your Tax Situation and Back Tax Liabilities

Divorce can be devastating - not just emotionally but also financially and in other ways. It can feel like your whole life is ending. You might lose friends, you might face significant changes in your career or housing situation, and you might grieve the loss of what you thought would be your last relationship. On top of all that, you'll certainly be dealing with some big financial changes, including how much you have available and an increase in your expenses. 

Your taxes can also change. You might end up in a different tax bracket, and you might not have the same deductions to claim. You might also face some complicated situations if you owed taxes while you were married but those debts weren't paid off by the time your divorce is final. It's important that you talk with an Arizona tax lawyer in addition to a divorce attorney so that you understand your rights and obligations.

Here's a quick overview of how your divorce might affect your tax situation or your back tax liabilities:

Fraud Liability

When you announce your intention to divorce - or your spouse does - your spouse may seem to turn into a different person. Your spouse may become downright hateful and spiteful, seemingly in complete opposition to you. You may not even know all the ways in which your spouse starts acting against you, such as hiding money, moving assets, or making underhanded moves to cheat you out of certain marital property. Your spouse may go so far as to break the law when trying to protect his or her own slice of the pie when it comes to your marital assets.

If your spouse fails to disclose income and doesn't pay taxes on such income, you could still end up being liable for those taxes. A good tax attorney can help you understand your liability and potentially help you get innocent spouse relief. Qualifying for innocent spouse relief requires that you meet specific criteria, and specific proof is required, so it's important that you have an experienced tax lawyer to help you get it.

Back Tax Liability

The IRS can audit your previous tax returns at any time as long as the statute of limitations is open. It may be years after your divorce, and you may get a notice saying that you are being audited. If the IRS finds that you actually owe money on an old return, you will still be on the hook for that amount with your former spouse. Those debts don't evaporate with the marriage as you have joint liability with a joint filed return.

A tax attorney in Arizona can represent you during the audit to help find additional deductions or tax savings. If your spouse did something to cause the debt without your knowledge, you may be able to get innocent spouse relief. Your tax lawyer can help you understand your options.

Alimony Deductions

If you are paying alimony on a divorce finalized before the end of 2018, you can deduct that as an expense from your income. If you are receiving alimony from a divorce finalized before the end of the year, you will have to report that money as income and pay taxes on it. But that will all soon change. Changes in the Tax Cuts and Jobs Act will eliminate those requirements, meaning that paying the alimony will not be deductible and receiving the alimony will not be taxable.

Again, it's important to always talk with a tax attorney who understands up-to-the-minute changes and how they will affect your situation personally.

Changes to Tax Filing and Processing

If you are changing your name after your divorce, the processing of your tax return may also be slightly delayed. The name has to match what's on your Social Security card, so make sure you apply for a new number and card as soon as possible if you know you will be changing your name.

There are many other ways that your divorce may affect your tax liability, so you need to talk with an AZ tax attorney to make sure you are meeting your obligations and are aware of your rights. 

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