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Divorce-related issues could spark a tax audit

Divorce can be a very difficult process for couples to complete, so imagine the stress and anxiety that a tax audit would add to the situation. The unfortunate reality, however, is that certain aspects of divorce could pique the interest of the Internal Revenue Service, particularly if a couple is splitting a large amount of assets.

Long-standing disputes have the potential to create animosity during divorce negotiations. As a result, one spouse might conceal assets in order to avoid splitting them. This is where the IRS could get involved, since there are tax implications for hidden assets. If this is the case, a person could become the subject of an audit due to their ex-spouse's decisions.

On a very basic level, federal and state officials know when people get divorced, since marital status is indicated on tax return forms. Any changes to this could raise a flag with the IRS. At the same time, if it's determined that one spouse has concealed assets during divorce, family law judges are legally compelled to report this to tax officials.

Knowing that the IRS could conduct a tax audit as the result of a spouse's choice to hide assets, there are a few things to keep in mind to prevent further trouble.

A report in Forbes points out that "Innocent Spouse Relief" may be available to help people avoid the consequences of a spouse’s violation in a jointly filed return. This, in turn, can also help a person be freed of the responsibility to pay any back taxes or penalties.

Of course, the hope is that both parties involved in a divorce will be up front and transparent. However, it may be necessary to take steps to defend against the fallout of assets hidden during divorce.

Source: Forbes, "Divorce Causes Tax Audits," Cameron Keng, Feb. 10, 2014

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