Divorce Decree Drafting Part 3

This is the third article in a four part series addressing frequently asked questions related to protection from joint and several liability in divorce. We are often asked about the language that a taxpayer’s attorney should include in the divorce decree to protect the taxpayer from joint and several tax liabilities for only their spouse’s conduct. This series is intended to provide taxpayers and practitioners with answers to the most commonly asked questions related to drafting a divorce decree to provide protection from joint and several liability in divorce. Other posts in this series can be found here.
This article details the remaining seven items we have identified from IRS Publication 971 to include when drafting language regarding responsibility for taxes in a divorce decree:

Actual Knowledge: Understatement Cases.

An understatement case is a case in which the IRS conducts an audit of the tax return and determines a deficiency because the tax return either failed to include all income or included erroneous deductions. In an understatement case, actual knowledge of the item giving rise to the deficiency is a strong factor weighing against relief.
In the Eighth Circuit, the test of actual knowledge in an understatement case is whether “a reasonably prudent taxpayer under the circumstances of the spouse at the time of signing the return could be expected to know that the tax liability stated was erroneous or that further investigation was warranted.” Erdahl v. Comm’r, 930 F.2d 585, (8th Cir. 1991).
The requesting spouse has a duty to review the tax return and determine whether the omission of income or inclusion of certain deductions would give rise to a substantial understatement.
The decree should discuss the facts and circumstances surrounding the signing of the joint return and, when the facts are present, a statement that the requesting spouse reviewed the return and did not know of any omission of income or erroneous deductions.

Reason to Know: Understatement and Underpayment Cases.

The IRS considers:

• The requesting spouse’s level of education;
• Any deceit or evasiveness of the non-requesting spouse;
• The requesting spouse’s degree of involvement in the activity generating the income tax liability;
• The requesting spouse’s involvement in business and household financial matters;
• The requesting spouse’s business or financial expertise; and,
• Any lavish or unusual expenditures compared with past spending levels.

Even though many divorce decrees will address some or all of these factors outside of the tax context, the decree should still address all of these factors in some way. Be sure to explain in the decree how the couple managed business and household finances and stress that it was the non-requesting spouse who worked with the accountant to assist in preparing the tax return when that fact is present.


The divorce decree should separately address any tax obligations and allocate these tax obligations to the non-requesting spouse. The decree should also include a provision that the non-requesting spouse will indemnify the requesting spouse in the event the IRS receives any payments from the requesting spouse. For purposes of receiving treatment as an innocent spouse, this factor does not favor relief when the requesting spouse knew or had reason to know of the tax obligation.

Significant Benefit.

One of the factors the courts use to determine whether it is inequitable to hold the requesting spouse liable for a joint tax obligation is whether the requesting spouse significantly benefited from the understated taxes. Section 1.6015-2(d) of the Federal Treasury Regulations defines “significant benefit” as “any benefit in excess of normal support.” “Normal support” is measured by the circumstances of the parties. Estate of Krock v. Comm’r, 93 T.C. 672, 678 (1989). Expenses in excess of normal support include payments for a child’s education, special purchases for a couple or their children, or unusual or frequent travel. See, e.g., Billings v. Comm’r, T.C. Memo. 2007-234, (2007). The decree should state how the non-requesting spouse used or spent the funds that should have been available to pay the taxes. Include a statement that the requesting spouse’s lifestyle did not improve. When present, state that the requesting spouse did not have access to the funds or use the funds to make unusual or lavish purchases.

Future Compliance.

When the facts are present, the decree should include a statement that the requesting spouse has complied with the income tax laws in the taxable years following the taxable year or years to which the request for relief relates.


A history of abuse by the non-requesting spouse may mitigate a requesting spouse’s knowledge or reason to know and language regarding any abuse should be included in the decree. The United States Tax Court defines abuse as “verifiable physical harm.” Nihiser v. Comm’r, T.C. Memo 2008-135. The Tax Court has also recognized abuse in some situations when neglect, abandonment, emotional abuse, or verbal abuse was present in the marriage.

Mental and Physical Health.

If the requesting spouse was in poor mental or physical health on the date he or she signed the tax return, you may consider including a statement regarding the requesting spouse’s mental or physical condition.

Please check back in the weeks and months ahead for the final post detailing additional factors to keep in mind to successfully obtain innocent spouse relief.