Bedrock Divorce Advisors
Think Your Husband Is Fudging Numbers – Don’t Sign That Tax Return
Most people find it hard to believe that Bernie Madoff’s wife, Ruth, had no knowledge of her husband’s Ponzi scheme. After all, she was a major beneficiary of his crimes. Whether or not she knew, most people think she was somehow involved and, at the very least, turned a blind-eye to his fraud.
Even though your husband may not be running multi-million (or billion) dollar Ponzi schemes, you could still be in for big trouble if he is fudging numbers, not reporting income, or claiming fictitious deductions on your joint tax returns. For example, if your husband owns a business or professional practice and the profit or loss from that business is declared on your personal tax returns as is usually the case with a sole proprietorship, partnership, limited partnership, LLC, or “S” Corporation and you are not privy to the finances of his business, you could be setting yourself up for a disaster. No matter how innocent or ignorant you may be of this type of activity, if you file jointly, you are equally responsible in the eyes of the I.R.S. and your state’s taxing authority. There is a very limited and hard-to-get I.R.S. and state exception called “Innocent Spouse Relief” but it is accepted in very few cases. See this New York Times article for more details: http://www.nytimes.com/2005/02/13/business/yourtaxes/13spou.html.
However, there is a way for you to avoid falling into this dangerous trap. You could choose to file a separate tax return.
According to the I.R.S., you can either file jointly or separately if you are married. If you choose to file separately, one spouse cannot be held responsible for the unpaid taxes of the other. However, it is important to note that even if you choose to file separately this year, you will still be responsible for the prior years that you filed together.
If you and your husband decide to file separately, you must both choose to either take the standard deductions or to itemize deductions. It is not possible for just one of you to itemize deductions. Additionally, filing separately can result in a bigger tax bill since you may not be able to take full advantage of certain benefits and deductions. However, the bigger tax bill would be nothing compared to your legal and accounting expenses if the I.R.S. comes after you.
When going through a divorce, there are many complex issues to sort through when deciding whether you should file separately or jointly. Remember, the I.R.S. does not care if you and your husband are divorced and, if warranted, they can still come after you for joint returns that were filed years before your divorce. If you suspect that your husband has engaged in any financial shenanigans, you should definitely speak with one of our Divorce Financial Strategists™ to determine what steps you should take to protect yourself. It could save you years of stress and lots of money!
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.