Taxes: Financial Professionals Can Help Divorced Couples Filing Joint Tax Returns
It’s the evening of April 14th — or even worse, it’s the night before the final personal tax extension date, October 15th, and you’re in the midst another fight with your soon-to-be-ex: He’s arrived home from the office armed with a copy of your 2007 Tax return, already signed by him. He presents it to you as a fait accompli — it’s ready to be filed, so he claims and his strong admonition is that- that you’d better sign it now, or else.This is the kind of thing that happens as your marriage is in its death throes, and your divorce is imminent.
This is your joint tax return, and if not signed by both of you, it either goes on extension tomorrow or if it’s October, it goes formally late within the next 24 hours. But you haven’t lived under the same roof for several months. Or if you have, you certainly have not been reviewing all of one another’s deductions, expenditures, income, expenses, bonuses, savings & retirement accounts. On the one hand, you may believe you have a firm grip on all of the financial dealings covered on this tax return, but still do not have all the background documentation. But God or the Devil — depending upon how you view it “ is in the details. And on some level, you’re aware that these details may be very high stakes.
Or, more commonly, you may realize that you do not have a handle on the particulars: While living increasingly separate lives, how much do you know what is and is not included in your returns? After all, it’s been a hectic year for you and your whole family.
You should know this: by virtue of signing the return, you are swearing that you know these particulars. Vouching also, that you can prove, and document every dollar of income and deductions, every line item. Moreover, you are also implicitly vouching that this return is complete, that nothing is missing such as unreported income, outlying interest or dividends, an annuity or retirement plan distributions, and the like.
Are you certain you know everything to make this written assertion to the IRS? So you’re faced with a dilemma: What do you do? Stop and take a breath. Get some good proactive financial and accounting advice. Think about what it may mean signing a joint tax return with a person with whom you will soon likely no longer be married. It could be perfectly fine. Or it could be one of the biggest financial mistakes ever. A potentially disastrous misstep taken without enough information or direction during divorce that could impact you for the rest of your life.
You may have read or heard that, all things being equal –couples still married filing jointly can owe less in taxes and have more deductions on the same income than if their return were filed individually. That may often be the case, and you should speak to your CPA or accountant to review the specifics of your individual situation.
However, you may want to weigh the potential for current income tax savings with the potential for a future unknown tax bill. You should consider: would potential tax savings be worth it if the two of you were audited months or years down the road and found that you had unreported income or large unallowed deductions?
As a first and second line of action, they will come after for both you and your ex for any money they deem is owed. Regardless of who prepared or earned the money. And their ability to attach accounts, property, real and otherwise is expansive. Even if you had a defense of not knowing the particulars, it can be so expensive, time-consuming and difficult to prove.
And what if that happens and your ex is no longer working, in the country, solvent or even alive years from now when the audit notices start arriving? Yes, this is borrowing trouble, but managing risk and trying to reduce the chances for the worst possible outcomes is part of what one must do during divorce.
Don’t forget: the IRS isn’t in the business of helping you and your ex to steer clear of pitfalls throughout your divorce. As always consult your legal, financial and accounting advisors to help give you timely proactive advice.
