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Marriage intertwines lives, an intimate and complex weaving of all personal affairs – emotional, logistical, legal, and financial. Because of that, disentangling everything in a divorce is painful, complicated, deeply personal, and, in some cases, full of unexpected pitfalls and unpleasant, even disastrous, surprises.
Between spouses, there’s trust, an assumption of honesty. However, even in the best-case scenarios, implicit trust tends to erode when a marriage unravels. On occasion, the divorce process uncovers secrets, hidden rifts, and breaches of trust that can expose both parties to scrutiny and trouble.
Tax fraud is a classic example
Many married couples file joint tax returns, and it’s very common for one partner to be the primary manager of marital finances – handling paperwork, paying bills, and making basic decisions, including tax filings. At the same time, the other spouse simply signs off, which can be true even in modern, two-earner households.
When a marriage comes to an end – amidst the personal tension, emotional turmoil, life upheaval, and chaos of the divorce process (paperwork, court dates, heavy-duty decisions about major issues) – taxes may be the last thing on a client’s mind. Unfortunately, many spouses do not understand that they are both liable for actions taken during the marriage and that decisions made about tax filings impact both partners.
As a family attorney with almost four decades of experience managing complex high-net-worth dissolutions and financial disputes, I have seen firsthand how tax fraud can undermine even the most carefully planned divorce settlements.
Sometimes, one partner committed tax fraud long before the marriage fell apart. In other cases, to protect their own interests or punish their ex during divorce, an angry, vengeful, devious spouse uses various forms of financial fraud to misrepresent their financial situation and manipulate the settlement. A dishonest spouse can be very crafty, making fraud difficult to identify and prove.
Meanwhile, when fraud is discovered, an innocent spouse can be implicated, with huge financial – and in the worst-case scenarios, criminal – repercussions.
Since the IRS has various legal avenues for seeking payment and applying penalties – such as seizing assets – a partner’s fraud can affect property division, potentially leaving less to divide in the divorce. Additionally, if fraud goes undetected, erroneous tax filings that distort income can influence spousal and child support calculations.
