When it comes to a divorce that includes a lot of assets, it’s understandable that divorcees may feel overwhelmed. Step back, take a breath, and confide in your lawyer. Attorneys who specialize in high-asset divorces work with forensic accountants, business evaluation experts and tax professionals to get you through the process.
Speaking of another process that can raise your blood pressure, let’s discuss taxes. Right about now Florida residents are digging through their filing cabinets, drawers and folders to compile all their tax paperwork. While it’s important to do your taxes properly in order to avoid an audit, readers should know that the mere action of divorcing can lead to an audit as well.
First, the Internal Revenue Service will inevitable learn about your divorce. Just like they know if someone is married via the “Married Filing Joint” or “Married Filing Separately” status, they will know you are divorced if you file as either “Head of Household” or “Single.”
So why might divorce lead to an audit? The answer is pretty simple. Any discrepancies discovered during the divorce process can be reported to the IRS. In fact, the judge is required to report such ‘reasonable inconsistencies’ due to their ethical requirements.
Finally, it’s good to know that the IRS has a three-year statute of limitations following your divorce to audit you. Unfortunately, that period can be extended if there is a large discrepancy (over 25 percent) or if fraud is suspected.
All in all, as you work with your lawyer and other professionals to uncover all assets that are to be part of the divorce, keep in mind that these discoveries could one day lead to a tax audit.
Source: Forbes, “Divorce Causes Tax Audits,” Cameron Keng, Feb. 10, 2014