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Articles Posted in Tax

One of the most important aspects of the divorce process is tax planning, yet it is possibly one of the least understood. Taxation issues are an essential aspect of most divorce cases and must be carefully handled prior to the dissolution of the marriage. Indeed, tax issues can determine certain aspects of the litigation. For instance, where one spouse earns substantially less than the other, various tax strategies can be used to legally shift income from the higher-earning spouse to the lower-earning spouse.

All of the available tax strategies are too numerous to reference and may change due to the needs of the parties, the complexities of the case or with new tax regulations and revenue rulings. When you’ve got a business to run and teams to lead, something life-altering like a divorce, can take a lot of time and due diligence. So here’s a non-exhaustive review of the basic taxation rules you should know about in matrimonial litigation.

Child Support And The Dependency Exemption

How does a Southern California Divorce effect one’s tax status?  I read a fascinating article on the financial website Smartmoney.com wherein it examines the consequences of an obscure IRS provision known as the “Innocent Spouse Rule,” touching on its particular role in divorce cases.

Briefly stated, the innocent spouse rule allows one spouse to avoid tax penalties related to a joint return if he or she can plausibly claim to have had no knowledge of what the other was doing in filling it out. As the article at Smartmoney.com makes clear, the term “spouse” can be slightly misleading, since the rule can also apply to divorced couples. That, of course, is good news. One of the sad realities of divorce, be it in Orange county, Los Angeles, San Bernardino or elsewhere, is that dissolving a couple’s financial links can sometimes be a more complex process than dissolving the marriage itself.

Smartmoney, for example, cites a case from the 90s in which a woman “was denied an appeal after the IRS wouldn’t let her claim the innocent spouse rule over a return prepared by her ex-husband.” The point here being that tax obligations incurred during the marriage followed the woman even after her divorce. Smartmoney notes that the law was changed in 2004 to make innocent spouse claims easier to file. That, however, has led to a huge spike in the number of claims made under the law and has led the government, in turn, to view such claims with increasing skepticism.