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Seperated couple faces problems after filing taxes

Tennessee residents contemplating divorce may find a recent case from Tax Court instructive. A couple, married in 1990, separated in 2008. They separated permanently in 2009 and obtained a divorce in 2010. The husband continued to allow the wife to file tax returns throughout their separations and the couple maintained separate banking accounts in different banks. The husband supplied his tax information to his wife in 2009 for filing married jointly, as in the past.

The wife actually filed the husband as single, reduced his income by $3,000 and increased his withholding by the same amount. She had the resulting refund sent to her account. She had also made withdrawals from her husband's IRA account totaling $37,020 in 2008 without his knowledge but had the money sent to her account. She used the money to pay for trips, expenses and to set up a separate household. When the husband received a 1099-R from the investment firm he realized there was a problem.

The ruling by the Tax Court found that the husband may be liable for the tax consequences of the IRA withdrawal and was responsible for the falsified tax return because it was unreasonable to depend upon his estranged wife for his tax filing. The IRA withdrawal deposit was eventually considered to be part of the couple's divorce settlement.

Divorce and complex property division might require accepting that financial separation from a spouse may be necessary as soon as possible. Separating all aspects of finances as soon as possible might be prudent due to the risks of being liable for debts and joint accounts being accessed and drained. An attorney working with clients pursuing a divorce may be able to help clients throughout that process.

Source: Forbes, "Post Divorce Tax Intimacy Can Be Riskier Than Post Divorce Sex", Peter J Reilly, January 07, 2014

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