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Form 982 Insolvency help?

My wife has some debt from a previous marriage that we are about to settle for a low amount. She will likely end up recieving a 1099-c due to this settlement. We plan on filing seperate this year due to this issue. What I’m wondering about is the insolvency clause. In filling out the Insolvency Worksheet from publication 4681 we can clearly show that she is insolvent by a majority (or all) of the likely 1099-c amount. We of course fully plan to speak with an accountant when we actually do file her tax return. What I’m curious about is will my assets cause her any problems? I have assets (namely a house and 401k) that are soley in my name and was purchased prior to ever meeting my spouse. Basically will the IRS require we file joint or will they count my assets/liabilities on the Insolvency worksheet?

Any/all help is greatly appreciated.

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3 Responses to "Form 982 Insolvency help?"

  1. Cathi K says:
    You are never required to file jointly but separately is much more expensive. Fewer deductions and higher tax rate. She would use her assets/liabilities plus and any joint assets. Your separate assets do not count.
  2. Bash Limpbutt's Oozing Cyst© says:
    In most states any property acquired to marriage remains separate property after marriage unless you take active steps to commingle assets.

    You can never be required to file a joint return, however if you live in a community property state, state law will determine who the debt belongs to. In a few cases it may be a joint debt now that you are married. CA, ID, and LA have some pretty strange laws and you might have to show half of all income and withholding on each return, including the COD income.

    Be careful when doing the worksheet on page 6. She must list the value of *everything* that she owns, including the rock that you presumably gave her when you became engaged.

  3. tro says:
    you probably better see what your state is, IRS is community property state but your individual state may not be
    there are two forms for such as your case, the injured spouse and the innocent spouse and if her debts were prior to your marriage, this should be considered

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