Washington is a community property state. This means that any income, property, or debts that a couple acquires during a marriage is assumed to belong to both partners equally. This is the case even if only one spouse purchased the property or actually owes the debt—under the state’s community property laws, all assets and debts are shared by a married couple.
During a divorce, a couple’s marital estate is split between the two partners in a fair and equitable manner. While these types of agreements are legally binding, they do not change the obligations owed to the original creditors. If one person stops making payments, the creditor has the ability to pursue either spouse that owes the debt.
Tax debts can be part of the marital estate, regardless of who actually owes money to the Internal Revenue Service. For instance, while a couple may agree that the husband will be responsible for paying off a tax debt, the IRS may still choose to hold the wife responsible as well.
In the case of unpaid taxes, these debts act as a lien on the taxpayer’s property. If a person fails to pay the IRS, the IRS can repossess that person’s home, vehicle, or other property. In a community property state like Washington, this means that the IRS may be able to take property which was awarded to one spouse even if that spouse was not responsible for paying off the tax debt. One Washington couple found this out the hard way after the IRS successfully seized community property due to an old tax debt.
In a case called Smith v. C.I.R., Mr. Smith alone incurred tax liabilities while he was married to Mrs. Smith. He failed to pay the IRS what he owed, and the IRS filed suit to foreclose its liens on the couple’s home. The home was community property under state law, and belonged to both spouses.
Mrs. Smith argued that the IRS could not foreclose on the couple’s home because it was community property and because she did not owe the tax debt. However, a federal court disagreed, and held that Washington’s community property laws assume that any debt incurred during a marriage—including tax debt—is a community debt owed by both spouses unless proven otherwise with clear and convincing evidence. Mrs. Smith could not prove that she did not owe the debt under the state’s community property rules, and thus could not win her case. The IRS successfully foreclosed on the marital home due to the tax debt even though the IRS acknowledged that Mrs. Smith had no obligation to pay them any money.
Couples should be aware that the IRS has the ability to foreclose on marital property even when only one spouse owes the tax. If there are tax issues pending in your divorce, it is important to ensure that these issues will not affect your property rights in the future.
When dividing property in a divorce settlement, back taxes can be a serious, long-term obligation that must be fairly managed with the help of a skilled Washington family law attorney. The lawyers at Pacific Northwest Family Law have many techniques at their disposal to help divorcing couples split marital property in an equitable way, and achieve great successes using mediation, collaboration, and other dispute resolution methods.
To schedule a consultation with one of our experienced Washington divorce attorneys and learn more about dividing marital assets and debts in a divorce, contact us today by calling 509-572-3700.