Jay Freeborne

by Jay Freeborne, Enrolled Agent

If you are getting married, already married or contemplating tying the knot, owing taxes can have a big impact on the marriage depending on where you live. Filing taxes, also, will need to be thought thru carefully once you make the plunge. To solve this puzzle, the first fundamental question you will have to ask is whether you live in a Community Property Law or Common Law state.

Community Property Law (CPL) states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington.

    Common Law States (CL) are the other 42 states not above. (mostly on the Eastern seaboard and in the Midwest).

    If you are marrying someone in Common Law (CL) states, you can live separate financial lives as you are considered "separate entities." Here's how being married in CL states affects the following situations:

    Owing Taxes Before Marriage: Looking to marry someone with tax problems in a CL state? This isn't super problematic (except for character issues) as your spouse will be able to resolve his tax issue without your financial condition affecting the resolution of his case. In other words, if he makes little income, he still might qualify for an Offer in Compromise to settle his taxes even though you are a big earner or brought a house into the marriage (you might wait to put him on the title, though).

    Filing: You can file separately (although at a higher tax rate) while reporting your income exactly as it is and hers as it is.

    Owing Taxes After Marriage: If your spouse owes taxes after you are married, he/she can deal with it separately. You might need to provide your financial information so his/her share can be properly calculated for Offer in Compromise analysis but you technically "aren't liable" for your spouse's taxes (if filing separately).

    If you are marrying someone in Community Property Law (CPL) states, you are much more entangled financially. His debt is your debt. His assets are your assets. His income is your income and yours is his. Here's how being married in CPL states affects the following situations:

    Owing Taxes Before Marriage: Looking to marry someone with tax problems in a CPL state? WARNING: this could be a big problem: more for the spouse who owes taxes rather than for the person who doesn't. For example, if you have a tax problem and marry a high earner, her income could DISQUALIFY you from an Offer in Compromise(OIC). (Technically, assets owned pre-marriage can be considered "out-of-play" in OIC analysis/tax resolution but community property income must be declared as well as assets that you create as a couple. It should also be said that in most cases you can avoid being garnished for tax debts owed by your spouse from before marriage, but to resolve the tax debt in an installment agreement or OIC you will need to disclose your income).

    Filing: Filing separately (MFS) in a CPL state is especially troublesome as tax preparers must report the income 50/50 even if she earns 90% of the income (although many tax preparers are persuaded to avoid the 50/50 rule as it's complicated to collect that info from an uncooperative spouse they can still be audited). Furthermore if there is tax liability (made more onerous due to MFS rules), you technically owe both debts, yours and his, due to the CPL rule.

    Owing Taxes After Marriage: If you owe taxes after marriage in a CPL state, pretty simple, both of your assets and both of your income will be required to determine the proper resolution of the case. No splits.

    WATAX helps married and single people resolve their tax problems for over 30 years. Email us a description of your tax issue and we'll contact you or call us at 1-888-282-4697.

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