Q. My husband and I separated in 2009 but we are not divorced yet. We are on extension because he wanted me to sign a joint tax return with him, but I am nervous about doing it and keep stalling. He says if I don't sign he will ask the judge to make me. He has his own business and I suspect he is not reporting all his income. Am I required to file jointly and what happens if I do?
A. If you remain married as of December 31 of any year, you may - but you
not required to - file jointly with your husband. It does not matter that
you were separated during the tax year as long as your marital status
has not been terminated, for instance by a Bifurcation application. You
cannot be forced to file jointly, and no judge would order that you do
so. Married people who are considering not filing jointly, however, should
avoid signing the joint Form 4868 for the automatic extensions; depending
upon other circumstances, the IRS might deem this is a consent to a joint return.
The chief problem with filing joint tax returns is that each spouse is "jointly and severally" liable for one hundred percent of any taxes due on either and both parties' income, and interest and penalties as well. If you suspect your husband is defrauding the IRS you are ill advised to file with him. Another problem is that absent an agreement otherwise, tax liabilities incurred between the date of marriage and the date of separation are community property debts, regardless which of you generated the income upon which the taxes are based. If it is not clear that you do not intend to take on any share of the liability, particularly the portion incurred after separation, by signing jointly an argument can be made you should be responsible for one-half of the full-amount. It is best to define your understanding in a writing signed and dated by both of you.
If you do file jointly anyway, at a minimum consider first getting him to sign an indemnification agreement; if there is a court proceeding pending between you, this should be in the form of a Stipulation and Order that is filed with the Court. You want a judge's signature on the agreement because agreements have to be converted into orders or judgments anyway to be later enforced if one party breaches their promises.
Indemnification agreements are only as good as the availability of a meaningful remedy, and they apply only as between the parties and do not bind the IRS or anyone else. Even if your husband promises to pay all the taxes, interest, and penalties, and even if his promise becomes a court order, as a practical matter if he later lacks the ability to meet his obligation (or refuses to do so) you may wind up with a money judgment against him that you cannot collect.
But there can be good reasons to file jointly, and it is much less a problem where your spouse is trustworthy. Taxes are usually but not always lower, and to the extent he paid you spousal support in 2009 if you file jointly you will not be charged with that as taxable income; but nor will he get to claim the spousal deduction.
The issue of joint returns is something divorcing couples often barter over. You ought to have clear ideas of the pros and cons for you in your particular situation. If you are reluctant to sign, consider what you might trade for. It may be helpful to know how much money your spouse stands to save if you agree to file jointly, so you can evaluate the value to him of your cooperation.
I urge you to speak to a competent accountant or other tax specialist early on, and before signing an extension request. Most attorneys have a limited understanding of tax rules, and they will usually urge you to consult an expert. You should follow that advice. Unless a lawyer is herself a tax specialist, avoid relying just on an attorney's opinion. Besides, an accountant can examine how you might end up under your other options.
And throw a FB like our way?
Thurman W. Arnold III