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Taxes, Marriage Dissolution and Kentucky Law

In any dissolution, questions about taxes loom large, particularly during tax season. In most families, one partner has traditionally assumed the responsibility of preparation of household financial documents and continues on with the chore out of habit. Sadly, with the shattering of the trust that comes about from the end of a marriage,there also comes a reluctance on the part of the partner who hadn't previously prepared those documents to cooperate.

There are some good general principles to adhere to with regard to questions about taxation in a divorce, and there are certain predictions that a good attorney can make regarding the likely rulings of judges in Louisville as they apply Kentucky law.

- Tax returns for the year in which the divorce decree is issued should almost always be filed jointly, assuming that neither party has readily identifiable underlying problems regarding past unpaid taxes or unreported income. With the proliferation of good tax software, it is now fairly simple to prepare one set of returns reflecting the overall tax "bite" should the parties file jointly and one set of returns showing what would happen were the parties to file as if they were doing so separately.

- If there is a dispute as to the disposition of tax refunds, they can be held in attorney escrow or paid into a court receiver's office pending allocation by the court.

- Although the court can allocate unsatisfied prior year tax obligations between the parties (and may make property divisions which reflect how they are to be paid), be aware that the IRS is empowered to enforce those jointly or separately against either party absent approval of an application for treatment as an "innocent spouse" per IRS regulations.  "Innocent spouse" treatment is something which is fairly rare, and sometimes appears to be somewhat mercurially granted. More frequently, the general remedy a wronged spouse has with regard to tax collections which exceed their obligations set forth in a family court order is to seek sanctions against the defaulting spouse in the family court, whereupon the court can order a restoration of funds from the defaulter to the wronged party.  These ordered payments constitute domestic support obligations, and are nondischargeable in bankruptcy.  The family court can and does use its contempt power on these restorations, and that contempt power can include jail time.

- The general IRS rule has lately been construed to provide that dependent deductions and exemptions go to the parent who has the child or children over 50% of the time. Kentucky courts now defer to the IRS on these rules.  

When divorcing, it is important that your attorney be at least conversant on these tax issues in order to fully meet your needs, and if you don't understand what you're being told, ask appropriate questions.  As a family law attorney who is also admitted to tax court, I can assist in establishing the ground rules as regards tax treatment in your family law matter.

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