California Legislation Addresses Tax Liability and Divorce

tax-169849-m.jpgCouples who decide to divorce are often concerned with resolving the most visible and practical matters: child custody, visitation, and support, as well as spousal support and property division. In addition to these highly important issues, there are some less obvious but significant matters that could affect the parties financially once the divorce is finalized. For example, according to the Internal Revenue Service, most married couples file joint tax returns because of certain benefits this filing status affords them. This means that both spouses are jointly and severally liable for the tax, and any additions to tax, interest, or penalties that arise from the joint return even if they later divorce. In order to completely understand your potential liability for taxes and other financial burdens in divorce, it is essential that you contact a local San Diego family law attorney as soon as possible.

Under current California law, a spouse may find relief from such tax liability after a divorce, but only if the dissolution of marriage meets certain required conditions. There are several types of relief, including Innocent Spouse Relief, Separation of Liability Relief, and Equitable Relief. Each category provides eligibility requirements in order to qualify for the specific relief sought. Alternatively, a spouse may be eligible for a revision of joint and several tax liability by “court order” if the court-issued divorce decree contains an order relieving a party of some or all of the unpaid tax due from a joint tax liability. These legal steps are intricate and must be followed in order to obtain relief.

According to recent news, legislators in California are attempting to ease the financial burden of spouses who are not legally obligated to pay certain taxes. Senate Bill 526, authored by Senators Jean Fuller and Sharon Runner, authorizes the Franchise Tax Board (“FTB”) to honor divorce agreements pertaining to tax liability. The Bill, sponsored by George Runner and Fiona Ma (members of the Board of Equalization), would give the FTB “flexibility to consider the divorce agreement when making a tax liability ruling.” Currently, the FTB only follows a divorce court order if it meets the stringent legal requirements mentioned above. Therefore, taxpayers who believe that they are protected from this tax liability typically must go to court to enforce the terms of their divorce agreement.

This new law would help in cases when a couple’s divorce agreement identifies a spouse as having no legal obligation to pay the tax. Supporters of the Bill have pointed out that, while it seeks to protect either spouse, the large majority of these cases affect women. The Bill was recently passed by the Senate with unanimous, bipartisan support, and it now moves to the State Assembly.

Clearly, this Bill, if passed, would give great weight to the terms of a divorce order and judgment, as far as each spouse’s tax liability is concerned. For that reason alone, it is imperative that if you are going through a divorce proceeding, you are guided by an experienced family law attorney who would ensure that your financial rights in this realm are adequately protected. Roy M. Doppelt has been representing parties in divorce matters for more than 20 years. His office serves clients throughout Southern California, including San Diego, Encinitas, La Jolla, and Chula Vista. For a free consultation, contact Doppelt & Forney through our website, or give us a call toll-free at (800) ROY IS IT (769-4748).

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