A marriage joins two people together as one. This is true not only emotionally, but financially and legally as well. In a marriage union each spouse has a "fiduciary duty" to the other- a promise and obligation to look out for the other person's financial situation and not cheat them through the special trust relationship of marriage.
But what happens when one spouse has begun to view themselves as a separate person. When marriages begin to fall apart, obviously emotions run high. Sometimes one spouse is in denial and refuses to acknowledge the signs that should be obvious. This is particularly unfortunate because it is precisely at this time- when your spouse no longer feels they have to keep their fiduciary duty to you- that you need to put emotions aside and keep your wits about you and prepare for your own, separate financial future.
One of the last things thought about- even among many divorce lawyers is the tax implications of your divorce. Most married persons file joint income tax returns automatically, even when only one may generate all of the income. But when marital disruption gets underway the returns are often late or not filed at all. Bad feelings and suspicion may arise as one spouse tries to box the other into a tax corner.
There also could be underwithholdings, omissions of income, exaggerations of deductions, interception of refunds and destruction of tax notices.
If you are facing the prospect of a divorce, you need to be aware of the early warning signs that Here are the top warning signs
1. YOUR SPOUSE REFUSES TO SIGN THE TAX RETURN
Not signing the joint return can be your first signal that your spouse is preparing for a divorce. If your spouse delays or gives reasons for not signing your joint return, you should pay attention. Your spouse may be thinking about a financial future that does not include you.
2. YOUR SPOUSE INTENTIONALLY UNDER-WITHHOLDS
Your spouse may be aware of the co-liability that attached to a joint tax return. The devious spouse will want to take as much cash as they can and make you jointly liable for the increased tax bill - while he/she squirrelled away the cash. There is no easy way to discover this however. Your spouse may change their W-4 Employee's Withholding Allowance Certificate to take less tax deduction without your consent and the employer is not required to notify the employee's spouse. The innocent should review their spouse's pay stubs. If your spouse refuses to show you or delays or makes excuses- then you should be very suspicious.
3. YOUR SPOUSE SKIPS ESTIMATED PREPAYMENTS
Many couples have sources of income that are not immediately taxable such as self employment income, rental property income, and the like. The innocent spouse needs to be aware that prepayment of estimated taxes is the law. This is generally done quarterly with IRS FORM 1040-ES Estimate Tax for Individuals. If your spouse has started to file forms that are grossly inadequate to the normal, filed later or not at all then your spouse may be preparing for a divorce.
4. NOT REPORTING SUBSTANTIAL INCOME
By signing the joint return, the innocent spouse is confirming all that it contains and making him/her equally liable for any tax fraud it entails. If the income reported is less than 25% of what was actually earned, then the IRS considers this a "substantial omission" and triggers a special rule (IRS code 6501(e)) that allows the IRS to examine all returns for the prior six years. If a substantial omission is discovered, then a 75% civil fraud penalty applies.
5. YOUR SPOUSE INTERCEPTS THE TAX REFUNDS
Because most returns direct the IRS to direct deposit funds into an account electronically, it is ridiculously easy for a devious spouse to put in the account number for a separately held account that the innocent spouse does not know about. If the devious spouse is especially cunning, they will deposit into the joint account a small portion of the tax refund because the innocent spouse often will not pay attention to, or will have forgotten the amount of the refund from the return they signed. The best way to check against this for the innocent spouse to keep a copy of the return and cross reference the joint account when the refund is deposited.
6. YOUR SPOUSE DESTROYS TAX NOTICES.
If your spouse insists or makes excuses why her or she should be the one to collect the mail every day, you should be suspicious. The IRS will send notice errors or delinquency and if ignored, the IRS may begin to levy money from the innocent spouse's paycheck or financial accounts. If your spouse destroyed all the letters and communications including the Notice of Levy, then the first time they find out about it is when their paycheck or separate account is "suddenly" short.
In each of these warning signs, there may be reasonable explanations and separate and alone, they do not necessarily justify taking any kind of legal action. But taken together, and along with any other factors you may see in your marriage they may indicate you need to begin to take steps to protect yourself from getting in trouble with the IRS and/or being denied a fair division of the marital estate during a divorce.
If have strong suspicions you should check with a skilled divorce attorney who understands the tax implications of divorce and understand your legal and financial rights.
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Sean Y. Palmer is an Texas Attorney who has practiced exclusively in the area of Family Law for the the better part of 17 years. He lives in Kemah, Texas with his daughter, and a fish named Harvey.
