Can a divorce increase your likelihood of a tax audit?

On Behalf of | Jul 2, 2021 | Property Division

If you are going through a divorce, you may have no desire to maintain contact with your ex-spouse. Of course, if children are involved, minimal communication may be unavoidable. But if you and your ex don’t have children together, you may find it easiest to simply move on and start your new life with a clean break.

However, it’s important to understand that financial disclosures made in divorce court have the potential to wind up in an audit by the Internal Revenue Service (IRS).

When can a divorce lead to an audit?

The IRS has access to an enormous database of information on you. They have your tax filings. They have information regarding your marital status. In addition, they will also receive any inconsistencies in assets reported to the court in your divorce.

Sometimes, an omission may be unintentional – and a spouse may simply forget to include certain assets such as their pension, IRA and 401(k) in their asset disclosure. However, if those assets were acquired during the marriage, they are generally considered marital property and must be divided – and reported to the IRS.

What are the limitations?

Under federal law, the IRS has three years from the date of divorce to audit a marital estate’s assets and finances. If IRS auditors find a discrepancy greater than 25%, that period – known as the statute of limitations – can be extended for up to six years. Furthermore, if IRS officials suspect the discrepancy was the result of fraud, they may have an unlimited time frame to complete their investigation.

What can you do to prevent this?

The prospect of having to reopen communications with your estranged former spouse over a tax audit may not sound desirable. However, wise selection of your divorce attorney can help to avoid this outcome.

An experienced attorney will have strategies in place for valuing the marital estate – and helping you to avoid an unintentional omission. They will also have other tools at their disposal for discovering hidden assets and obtaining information from a spouse suspected of withholding financial information. Having comprehensive legal support can help to keep you on solid footing during – and after – your divorce.