What happens when a Kentucky spouse cheats the tax system?

Last week we discussed hidden assets in a divorce. This week we will explore further ways in which a spouse's problematic behavior could affect an innocent spouse in Kentucky. When one spouse tries to cheat the tax system, their behavior could have implications for asset division and other divorce issues.

There are numerous ways a spouse may try to cheat on their taxes. They may not fully report their income. They may improperly claim tax credits or take unlawful tax deductions. Unfortunately, if each spouse filed jointly before they divorced, each spouse will typically still be liable for any tax issues caught by the Internal Revenue Service after the divorce has finalized based on those filings. Even if the couple's divorce decree designates one spouse or the other to be responsible for taxes, the IRS need not follow such a decree. This leaves both spouses on a joint tax return responsible for the information provided therein, or lack thereof. This is especially problematic in a high asset divorce.

So how can an innocent spouse avoid being swept up in their ex-spouse's tax affairs? First of all, while married, if there is any indication that one spouse is trying to cheat the tax system, the other spouse may submit their taxes as "married filing separately." This way, each spouse is only responsible for reporting his or her personal income, along with any consequences that may follow.

If a couple had already filed jointly, there still may be options. A spouse could submit an application through the IRS for "innocent spouse relief." This is because the IRS acknowledges that sometimes one spouse has no idea that their partner is trying to cheat the tax system. By filing for "innocent spouse relief," the spouse who honestly did not know of their partner's illegal actions may not be held liable for any consequences that stem from such actions. However, to be granted such relief, it usually must be shown not only that the spouse was not aware that their partner was behaving unscrupulously, but also that they had no reason to think so.

In the end, it is important for spouses to be aware of their partner's income and financial transactions both prior to and following a divorce. A Louisville high asset divorce attorney can assist either spouse in understanding their legal responsibilities and rights under the law.