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When your divorce causes a tax audit

Florida couples who have recently divorced may want to watch out for the IRS. Due to the additional scrutiny on a couple's finances during a divorce, there's an increased chance that a couple will be audited for discrepancies in previously-filed tax returns.

In many cases, divorces require a forensic audit, which is used to disclose all income and assets so that property can be distributed equitably. A judge usually reviews the information gathered by this audit before making rulings regarding property division. If the judge notices any inconsistencies in the couple's finances, he or she is obligated to share that information with the IRS. Such inconsistencies might include undisclosed income and hidden assets.

Even if no discrepancies are discovered by a judge, the IRS still has the ability to determine if a divorce occurs. When you file your taxes while you are married, you file as married filing jointly or married filing separately. Once you are divorced, you then file as single or head of household. This change in disclosure is noticed by the IRS.

If an audit does occur, there is relief if you are not the party at fault for the discrepancies. IRS allows three types of relief so that the fault is assigned to the right spouse. They include a separation of liability relief, innocent spouse relief and equitable relief.

An attorney experienced with resolving high net worth divorces in Florida may be able to provide advice and direction on the division of businesses, stock options and real estate. An attorney may be invaluable when facing an IRS tax audit if you suspect your spouse is hiding assets in a fraudulent manner. Attorneys may be able to work with the forensic accountants responsible for the forensic tax audits. A family law attorney may help prepare and protect important financial documents for the divorce court proceedings.

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

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