How to Solve Tax Debt Created by a Spouse or Ex-Spouse

Today, tax debt problems related to marriage and divorce seem to be as American as apple pie. Usually, one spouse or ex-spouse bears the brunt of the blame for the tax debt issue.

That doesn't mean that the other spouse is automatically off the hook. Far from it. Nevertheless, there are options for fixing tax debt problems related to spouse problems.

Tax Debt Relief: Two Options

Here, in no particular order, are the two main options:

1. Innocent Spouse. Let's say that your ex-husband did something financially obtuse such as pull out his entire 401K in the amount of $100,000 and not take any taxes out of the distribution, then not tell you about the distribution and spend the distribution on who knows what. That's a perfect example of why he's now your ex.

But you filed a joint tax return for that year, so technically, you are liable for income tax due for income related to that year. Apply for tax debt relief through the innocent spouse rules ASAP.

To qualify as an innocent spouse, you must:

• Show that the tax debt was created by omitted income or erroneous deductions or credits from your spouse (not you)
• Show that when you signed the return, you did not know of the omitted income or erroneous deductions or credits being perpetrated by your spouse

If you can meet those two requirements, you may qualify for tax debt help through the innocent spouse rules. Make sure to file Form 8857 within two years of the start of IRS collection activities to stake your claim. Also be prepared to defend your position. The IRS traditionally mails your claim to your ex and gives him or her the chance to dispute it.

2. Equitable Relief. The other main way of receiving tax debt relief related to the wrongful behavior of a spouse is to apply with the IRS for something called "equitable relief." Due to the extensive rules used to determine who qualifies for equitable relief, you may want to work with a tax debt settlement pro to get this job done.

Here, though, are the seven basic tests:

• You filed a return for the year the relief is sought
• You can't get relief through the innocent spouse rules
• You have filed Form 8857 no later than two years after the IRS started trying to collect the tax debt
• No assets were transferred between you or your spouse as part of a fraudulent scheme
• Your spouse did not transfer assets to you for the purpose of tax avoidance
• You did not file or fail to file the tax return with fraudulent intent
• The income tax liability is clearly attributable to the other spouse

The IRS may also consider, when considering the equitable relief option, economic and health factors related to your situation. For instance, if you suffered abuse or intimidation at the hands of an ex-spouse, or if the tax debt in question endangers your ability to pay for basic living expenses.

About the Author:
Andrew Freiburghouse is a freelance writer and editor living in Brooklyn, NY. He has worked in a variety of fields including magazine journalism, tax preparation, screenwriting, copywriting, and real estate. He graduated from Santa Clara University in 1999 with a B.A. in English. A regular contributor at tech blog Edgelings.com, Andrew was born and raised in the City of Los Angeles. He hopes he will survive the New York winter.