Divorce is a tumultuous and emotional period in one’s life. When you add tax debts to the mix, it can become even more overwhelming. If you happen to be going through a divorce in Rhode Island while dealing with IRS debts, it is crucial to familiarize yourself with your options and determine the best course of action to handle this challenging situation.
Demystifying Tax Debts And Divorce
During a divorce, it is necessary to divide your marital assets and liabilities, which includes any existing tax debts. In the state of Rhode Island, all properties and debts amassed throughout the marriage fall under the category of marital property and are subject to equitable distribution.
If both you and your spouse are responsible for joint tax debts, it’s essential to understand that the IRS can hold both of you accountable for repayment. Even if your divorce settlement assigns liability for the debt to your ex-spouse, the IRS can still come after you if the debt remains unsettled.
Consider Your Options
Fortunately, there are various options available to assist you in managing tax debts during a divorce. Let’s explore some of them.
Option 1: Offer In Compromise
An offer in compromise is an agreement between you and the IRS in which you settle your tax debt for an amount less than the total owed. To qualify for this option, you must demonstrate that paying the full tax debt would result in severe financial hardship. Opting for an offer in compromise allows you to avoid wage garnishment or liens, providing a viable solution if you are unable to pay the full amount.
Option 2: Installment Agreement
If making a lump sum payment is not financially feasible for you, an installment agreement may be a suitable alternative. This option permits you to pay off your tax debt over time through regular monthly payments. It is an excellent choice if you have the means to make consistent payments but struggle to come up with the entire sum at once.
Option 3: Innocent Spouse Relief
In circumstances where you were unaware of your ex-spouse’s tax debt when filing a joint tax return, you might be eligible for innocent spouse relief. With this option, you will not be held responsible for your former spouse’s tax obligations. To qualify for innocent spouse relief, you must meet specific criteria, such as proving your lack of knowledge regarding the debt and your inability to have reasonably known about it.
Option 4: Currently Not Collectible Status
If your financial situation prevents you from settling your tax debt, you may qualify for a "currently not collectible" classification. This status means that the IRS temporarily suspends collection efforts until you are in a better position to repay the debt, offering you relief during times of financial hardship.
Seek Expert Guidance
Navigating tax debts during a divorce can be intricate, especially when emotions are running high. Engaging the services of a qualified tax professional can significantly aid you in successfully managing this complex process and determining the best course of action for your specific circumstances.
Working alongside a tax professional enables you to understand your options fully and negotiate with the IRS on your behalf. Furthermore, they can assist you with tax planning to minimize your future tax liabilities, ensuring a smoother financial journey moving forward.
Conclusion
Divorce is never a walk in the park, and the involvement of tax debts only amplifies the challenges. If you find yourself facing a divorce in Rhode Island while simultaneously dealing with IRS debts, remember that you have options. Familiarize yourself with these options and seek the guidance of a tax professional to make informed decisions tailored to your unique situation. While it may seem overwhelming, with the right support and knowledge, you can successfully navigate the process and embrace a brighter future.