Filing taxes married or separately, and legal liability for a spouse's past filings

Karin Price Mueller/NJ.com - The Star-Ledger writes:  Question. My wife and I were married five years ago. It’s her first marriage and my second. We are in our 50s and we have kept our finances separate. This included tax filings, maintaining two homes (one in her name and one in mine) and we have protected each other’s assets via a prenuptial agreement. We have always filed Married Filing Separately. Does this protect our separate assets in the event that either party had made mistakes or oversights in their previous IRS filings? And if we file this year as Married Filing Jointly, would either of us now be liable for any back taxes or penalties for prior filings that we filed separately?

— Ron

Answer . It’s very smart of you to ask first, rather than do it and potentially deal with a mess later.

You actually have two fundamental questions: The first has to do with income taxes and the second has to do with assets.

When you file separate returns, each taxpayer is responsible for the accuracy and payment of tax related to their own return, said Clare Wherley, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.

"On a joint return, both spouses are responsible for the accuracy and the payment of tax," she said. "If either spouse is unwilling to assume legal and financial responsibility for the other spouse’s tax obligations on a joint return, he or she should file separately."

A newly married spouse is not liable for the other spouse’s past tax obligations, or filings before the marriage, Wherley said.

But there is one catch.

"A refund on a joint return or an assessment on a past — pre-marriage — return could affect the ‘innocent spouse," she said. "In the case of a refund on a joint return, it could be diverted to satisfy a prior year obligation of the not-so-innocent spouse."

If this happens, she said, the innocent spouse can file for injured spouse relief.

You mentioned that you and your spouse keep your assets separate. Wherley said that’s a smart strategy because if the IRS decides to seize assets to satisfy a prior (non-innocent spouse) tax obligation, it can access joint assets.

Bottom line: If you suspect prior years’ tax obligations exist, you would be wise to file separately.

It would also be smart to ask a tax preparer if you have any concerns about your particular situation.

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