MFS and PAST DEBT WHEN MFJ

[peggysioux]

Couple separated in August of 2009 and are filing for divorce, but still not final. They both have children from previous marriages. Tax Book states that taxpayer is considered "unmarried" if there is a divorce decree or "separate maintenance" at end of 2009. What does it mean by "separate maintenance"? Wife does not want to file MFJ and she will be due a refund if filed MFS. But husband is going to owe huge if he files MJS. Can he file single under the "separate maintenance" ruling? Grabbing for straws here for this taxpayer. They still owe taxes for previous years.....

[Possi]

Couple separated in August of 2009 and are filing for divorce, but still not final. They both have children from previous marriages. Tax Book states that taxpayer is considered "unmarried" if there is a divorce decree or "separate maintenance" at end of 2009. What does it mean by "separate maintenance"? Wife does not want to file MFJ and she will be due a refund if filed MFS. But husband is going to owe huge if he files MJS. Can he file single under the "separate maintenance" ruling? Grabbing for straws here for this taxpayer. They still owe taxes for previous years.....

Do they both have children who live with each one of them separately? If so, they can each file as head of household.


Another option is to file jointly with an Injured Spouse for the wife.

"Separate Maintenance" is the same as a legal separation agreement. Legally binding.

[ChEAr$]

Couple separated in August of 2009 and are filing for divorce, but still not final. They both have children from previous marriages. Tax Book states that taxpayer is considered "unmarried" if there is a divorce decree or "separate maintenance" at end of 2009. What does it mean by "separate maintenance"? Wife does not want to file MFJ and she will be due a refund if filed MFS. But husband is going to owe huge if he files MJS. Can he file single under the "separate maintenance" ruling? Grabbing for straws here for this taxpayer. They still owe taxes for previous years.....

"Separate maintenance" is a factor only when granted by a court. so if there was
no decree of separate maintenance or even a legal separation in place by 12/31/09,
then filing status is still married, whether jointly or separate return.

Now I'm not familiar with rules in community property states, but in a regular
state, she can file separate and her husband's projected tax liability won't be
a factor with her refund.
Unless..... they filed jointly in the past and those taxes were paid back then.

[peggysioux]

Mfs

Possi, you mentioned that HOH was a possibility, but they have not lived apart for six months; only five months so HOH would not be available unless I am missing something. I looked up both innocent spouse and injured spouse and it doesn't look as though she would qualify for either based on requirements. Am I missing something?

[erchess]

Observations

Head of Household is out because they were apart only five months and were not legally separated at the end of the year.

Injured spouse would not apply because they filed joint returns for the years that generated the tax debt.

Innocent spouse would only apply if he hid income from her under such circumstances that she did not benefit from it and had no way of knowing about it.

I got the impression that the man who will owe big filing separately is your client. His wife might agree to file jointly with him if he paid her an amount equal to the refund she would get filing separately and agreed to pay their joint debt if any himself out of funds he gets to keep after they split up. I don't know if the numbers work out for that to be a win win situation but you might suggest it to him. If they do make this arrangement they should both involve their divorce lawyers and their tax advisers and by the way you can't be tax adviser to both of them without their both agreeing in writing to waive your conflict of interest.

[peggysioux]

Mjs

I did suggest just that scenario and wife asked me to run the numberrs both MFS and MFJ, but being there would still be a tax liability with MFJ (but far smaller than MJS for husband) , I didn't know if wife would go that way because then she would be liable for 2009 debt as well. Husband does not have a divorce attorney and they have no major assets to divide. So could wife's divorce attorney write up a legal document that would waive her of 2009 tax liability if they file MFJ?

[Lion]

Tax is not primary concern

Tax is not the primary concern in a divorce. Probably, the biggest number is the lawyers' bills, unless they're splitting a house or business. So, anything that adds to the legal bill without reducing something else by the same amount is just spinning wheels. I never push divorcing couples to file a certain way. I tell my client the pros and cons of filing statuses and remind them that there are reasons other than tax reasons to handle their financial matters a certain way during divorce, that what was best for them two years ago might not be in her/his best interest right now. One might not want the other to see his/her financial situation until going to court, for instance, or might push harder for some other concession to make up for the tax return "favor" they felt they did. You might have the full financial picture (or you might not) but you don't have the full legal picture, so don't try to practice law. Tell your client the consequences and let him/her make the decision. It might be well worth it for your client to give up a more favorable filing status right now to get the divorce over sooner and with less haggling and with lower legal bills.

[peggysioux]

Mjs

That you all for good advice. The problem is that they both want me to file their returns. Husband, of course, wants to file MFJ and wife does not, but he was trying to persuade her. She brought me in her W-2's so I could run #'s both ways. So now, I think I will just have each sign a conflice of interest letter and provide breakdown of tax consequence by filing different ways. Again, thank you.