WHO GETS THE REFUND — WHO GETS THE AUDIT?

The refund is marital property. The audit, unfortunately, can be too. Almost nobody negotiates either one — and both default, by silence, to whoever the rules happen to favor.

THE ASSETS HIDING IN THE TAX FILE

The refund itself: a joint overpayment is not automatically half each — the government’s own allocation looks to whose withholding and payments created it, which is rarely 50/50 in a single-earner year. Estimated payments and overpayments applied forward: marital dollars already sitting on account with the IRS, silently credited to next year’s return — a return one spouse may be filing alone. Carryforwards: net operating losses, capital losses, charitable contribution carryovers, credits. Each has its own after-divorce allocation logic — broadly, attributes trace to the spouse whose activity or property generated them, and suspended passive losses under §469 travel with the activity itself. Left unaddressed, the attributes go where the tracing rules send them, which is frequently not where the settlement’s economics assumed.

A NUMBER WORTH SEEING

A $400,000 capital-loss carryforward is not a footnote — against future gains it is worth six figures of tax to whichever spouse can use it, and it costs nothing to allocate in the agreement. It is also invisible on a schedule of assets, because it isn’t an account. It’s a line on last year’s return that nobody at the settlement table has read.

THE LIABILITIES: OPEN YEARS AND WHO DEFENDS THEM

Every joint return signed during the marriage is an open file for at least three years — six where income was substantially understated, longer where foreign-asset reporting was missed. An audit that arrives two years after the decree lands on both signers, jointly and severally, whatever the decree says. So the agreement should answer, in advance: who controls the defense and chooses counsel; who signs statute extensions and settlements; who pays deficiencies, allocated by whose items produced them; who cooperates, with document-retention and access obligations that outlive the parties’ willingness to answer each other’s calls. Litigating those questions later costs more than the audit.

The firm reads the last several returns the way the other side’s forensic reads the bank statements — and prices what it finds into the settlement.

ONE PAGE THAT PAYS FOR ITSELF

A tax-attributes schedule belongs in every high-asset agreement: refunds and where they go; payments on account; each carryforward, its owner, and its value; open years and the control-and-indemnity terms; injured-spouse allocation if a refund is intercepted for one spouse’s separate debt. It is one page. It settles the arguments that otherwise begin in April, when the parties are no longer speaking and the preparer is holding two returns and one history.

ELSEWHERE IN THIS SECTION

• Testing Tax Claims Across the Table — the practice page: valuing and allocating tax positions in the division
• Signing a Joint Return During Divorce — the signature that creates the exposure
• Are Divorce Legal Fees Deductible? — the fee-basis article — some now, some later, some genuinely lost