Am I Liable for my New Spouse’s Old Tax Debts?

I get this question a lot from recent newly weds.  Often, one of the spouses has racked up a massive tax bill and the “nonliable” spouse is worried that his or her assets will now be subject to IRS lien and levy procedures.

If you’ve just gotten married and your spouse’s tax debts arose prior to marriage then you will have to work through a maze of California State and Federal rules to determine whether your assets can be attached by the IRS.

First, it is helpful to keep in mind that under federal law, the IRS (as a creditor) steps into the shoes of the taxpayer and that state law determines a taxpayer’s property rights to property.  Because a federal tax lien against one spouse attaches to all of that taxpayer’s property and rights to property in a community property state, the lien would attach to the liable spouse’s one-half ownership interest in all items of community property. 

In addition, in California, often times a private creditor has the right to collect a debt from all or part of both spouses’ interests in community property. (See Fam. Code 910.)  In other words, California is known as a 100% State, which means that the IRS (like other creditors) can collect from 100% of the community property for all the premarital tax debts of a spouse. 

California does make a key exception to the nonliable spouse’s wages that are earned after the marriage.  As long as these wages are deposited into an account only in the nonliable spouse’s name (and over which the liable spouse has no control or access and has not commingled funds), then these assets will not be subject to levy. (See Fam. Code 911.)   However, if these funds are then used to purchase real property or vehicles, then such assets would then be subject to potential IRS lien and levy.

One way to protect additional community property assets would be to have the couple enter into a post-nuptial agreement whereby the spouse with tax issues would waive any community property interest in the other spouse’s future earnings or property.  Of course, this should only be done after careful consideration of all the relevant facts and circumstances and may be subject to challenge by the IRS as a fraudulent transfer.