Income Tax Issues Following a Divorce
October 25th, 2017 by Tad Nelson in Divorce
There are a number of details that need to be sorted out in a divorce. One you may not immediately think of is taxes. If you and your spouse have filed joint returns, you are legally both liable for any income tax debt incurred during the marriage. Even if you choose to file separate returns, Texas is a community property state, and you may have to report one-half of any income earned by your spouse’s separate property.
Ex-Wife Accuses Ex-Husband of Sending Her Fraudulent Income Statements
In settling your divorce case, it is critical to resolve any outstanding tax issues. This includes not only determining what income belongs to what spouse, but also whether either or both spouses will “indemnify” the other for any tax liability issues that may arise post-divorce. This is one area where you want to be as clear as possible. The last thing you want to deal with after an emotionally draining divorce proceeding is to get a notice from the IRS claiming that you owe unpaid back taxes.
Of course, there are cases where one spouse may attempt to use a tax issue as a weapon against the other. Consider this scenario from a recent Dallas divorce case. The husband and wife in this long-running divorce case separated in 2009. The husband officially filed for divorce three years later, and a judge issued a final decree in 2015. The final order stated that all “federal tax income liability issues” between the couple had been resolved. On that point, each spouse agreed to pay a certain portion of any taxes owed, and each spouse indemnified the other for any failure to pay their share.
But after the divorce became final, the ex-husband sent his ex-wife two IRS Form 1099s, purportedly for income she earned while working for his business. The ex-husband further stated he forwarded the “appropriate information” regarding this alleged income to the IRS. The wife went back to divorce court, alleging these 1099s were never produced during the case and were, in fact, false documents designed to transfer income liability to her in violation of the court’s final decree.
The judge sided with the ex-wife. The court said the husband’s late mailings of the 1099s were “deliberately calculated to cause” his ex-wife financial harm, as this alleged income was never accounted for during the parties’ settlement negotiations. Accordingly, the judge ordered the ex-husband to indemnify his ex-wife for any tax owed on the 1099s.
Unfortunately for the ex-wife, this was not the end of the matter. The ex-husband appealed, and the Texas Fifth District Court of Appeals held the trial court exceeded its authority when it “sanctioned” the husband. To be clear, the appeals court did not condone the ex-husband’s actions. Rather, this was a situation where the trial court no longer had the authority to sanction the parties. Under Texas law, a trial judge retains jurisdiction over a case for 30 days after judgment–but here more than 100 days elapsed between the entry of the divorce decree and the subsequent order against the ex-husband.
Get Help With Your Texas Divorce Case
Divorce cases are often messy affairs. Working with a qualified Galveston divorce law attorney can help ensure your spouse does not try to take advantage of you during or after the proceeding. Contact the Law Offices of Tad Nelson & Associates today to schedule a consultation with an experienced divorce attorney serving clients in the Houston, Galveston, and League City areas.