The IRS and Divorce

There is a ‘silent partner” to every dissolution of marriage.  The Internal Revenue Service must always be considered when a couple divorces.  Parties must consider when payments between spouses have tax consequences.  If they do, what are those tax consequences?  Maintenance or spousal support will likely be tax deductible for the payor and taxable income to the payee.  However, this tax treatment can be lost depending upon the language in the Court Order or separation agreement.  Child support payments are not tax deductible.  Property division between spouses incident to a decree of dissolution of marriage is not a taxable event  under the current tax code.  But if the spouse who receives the asset in the divorce then sells it to a third party, that sale could result in tax consequences.  Do the spouses have existing tax liabilities that have to be dealt with in the final settlement?  Are there contingent tax liabilities that may arise due to improperly prepared tax returns during the marriage?  Does the “innocent spouse” doctrine provide any meaningful protection any longer?  Can maintenance be used as a planning tool to effectuate property divisions in the divorce?  What is “recapture” tax?  Dale E. Johnson, P.C. are not tax attorneys.  However, we work regularly with tax professionals as part of representing our clients.  Having the IRS as a silent partner in any divorce means everyone should at least be aware of the potential tax consequences that arise when parties divorce such that professional tax advice can be obtained.