Before You Sign a Joint Tax Return, Be Aware of What You’re Signing!

Before You Sign a Joint Tax Return, Be Aware of What You’re Signing! by Fabienne Swartz

{3:55 minutes to read} Tax time is a great prompt—for some people the only prompt—to think about finances. I have found that many of my clients actually know very little about the marital finances, trusting instead that their spouse will make appropriate decisions. Unfortunately, women who do that are putting themselves at risk for a variety of reasons: 

  • If your spouse were to die: The consequences of your spouse dying without a will are grave. It could result in a lengthy probate process while you are forced to make due without any money from the estate. That is why it is essential that you know…

    • where the estate documents are kept;
    • the login information for bank and brokerage accounts or retirement accounts; and
    • the location of vital business documents like financial statements, ownership documents, and insurance policies. 
  • In case of a divorce: Legal costs can skyrocket if additional research is required, such as discovering where assets are located, sending subpoenas, and requiring more work of the attorney representing you during the divorce.
  • You don’t know what you don’t know: It’s possible that your spouse has assets you don’t even know about. 

When a taxpayer signs a joint tax return they are affirming that they are equally liable for any errors or omissions their spouse may have made—this often happens because women have little or no knowledge of the marital finances.  

The best way to live up to that responsibility is by reviewing your tax return and supporting statements from such things as: 

  • Brokerage and bank accounts;
  • Interest and dividends;
  • Capital gains;
  • Various 1099s; and
  • Mortgage statements, including balance, remaining principal, and monthly payment. 

If your spouse receives a W-2, it is easier to discover their income. In some instances, the W-2 is attached to the tax return. If it is not, your accountant is required to retain a copy of it which you can request at any time. If your spouse is self-employed, uncovering their earnings is trickier. 

The spouse’s earnings may be found by analyzing a Schedule K-1 (used to uncover partnership interest), Schedule C  (showing a profit or loss from a business), or perhaps a business valuation performed by an expert in forensic accounting to find out what their earnings are and what types of deductions they take. Those deductions for certain expenses can be added back to gross income to calculate alimony and child support. 

Not having access to financial information is a serious hindrance to your effort to paint a complete financial picture and, ultimately, independence. Even if you are not getting divorced, and especially if you are the non-monied spouse, you need to be aware of what is on your joint tax return. Too many taxpayers bury their heads in the sand and face negative consequences—like getting flagged for many, many years by the IRS. 

Innocent Spouse Rule 

The IRS loves to say, “Ignorance of the law is no excuse not to follow it.” However, in instances that meet certain conditions, there is something called the Innocent Spouse Rule, which may mitigate some tax liability for spouses who were kept in the dark about the marital finances. 

The Innocent Spouse rule answers provide relief for certain situations in which one spouse was kept in the dark about assets prior to and/or liabilities that arose from filing a joint tax return. 

The process of triggering the Innocent Spouse rule begins with filling out IRS Form 8857. The form is lengthy and requires extensive documentation to accompany it. The IRS has produced a Frequently Asked Questions page about the Innocent Spouse rule, which can be viewed here

Discovering hidden assets or deceitful tax reporting requires a thorough knowledge of the financial system, as well as the law. A Certified Divorce Financial Planner can help you find the truth.

Fabienne Swartz JD (Belgium) CDFATM
Certified Divorce Financial AnalystTM
500 Mamaroneck Av.
Suite 320
Harrison, NY 10528
(914) 798-6940

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