California divorce may lead to audit by Internal Revenue Service

When people hear the word "divorce," feelings of stress may quickly sweep over them. They may immediately think about fighting with a soon-to-be ex-spouse over how shared property will be divided or who will get the car in California. However, even after a divorce settlement has been reached and the two parties have finally moved on, something may continue to haunt them -- the Internal Revenue Service.

More than half of all marriages end up in divorce, and when a divorce does happen, the IRS must know about it. This is because the divorce legally has to be disclosed. In addition, once a forensic audit is performed during a divorce proceeding, the judge involved in the proceeding has to report to the IRS any financial inconsistencies he or she uncovers so that a tax audit can be done.

A forensic audit during a divorce exposes information such as undisclosed income and hidden assets. It allows accountants to correctly determine the value of assets and income to ensure proper distribution of these shared assets between the divorcing couple. After getting information from a judge regarding any discrepancies in facts unveiled during the forensic audit, the IRS has three years to audit the couple's finances from when they were married.

In order to make sure that one is most successful during a divorce proceeding, the individual needs to know his or her rights. If the divorcing pair can negotiate on how to handle issues such as property division, the court doesn't have to get involved. Otherwise, the court will have to make these decisions for them, which can lead to undesirable long-term consequences for one or both parties in California.

Source: Forbes, Divorce Causes Tax Audits, Cameron Keng, Feb. 10, 2014

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