Q. My husband and I are in the process of mediation. He told me during our last session that I had to file joint tax returns with him and the mediator agreed it was the best plan because it would cost us more money in taxes separate. But, I am worried. I always thought I knew about our finances – turns out I was very wrong. When we exchanged financial statements, I discovered his retirement is completely gone. I don’t know when he took the money or where it went.
I am a receptionist at a dental office and have very straight forward taxes. My husband used to work at Fidelity and now he runs his own technology consulting business so his taxes are more complicated. We have always filed jointly but now I am worried he is not being straight forward because our second largest asset disappeared.
Should I just file jointly or is there something I can do to protect myself?
You said a number of concerning things. First, you need to find out where his retirement went and not just accept that it is gone. Did he move it to another management firm and just not disclose it? Withdrawals of retirement trigger issuance of 1099’s and tax reporting so any withdrawals should show up on prior years tax returns. Your first step is to review the prior returns to see if they show liquidation over time. If not, you need to address the disappearing act. Tell the mediator you need to know where the retirement went and why it was not reported on the tax returns if withdrawn before you can agree to anything else.
This should cause the mediator to insist your husband produce documentation showing where the retirement went. If it turns out he moved the money and did not disclose it on his financial statement, you need to consider whether he is someone you can continue to mediate with. Mediation only works if you can trust each other.
If it turns out he really did withdraw the money, you need to know what he spent it on. His income probably did not decline in 2020 as a technology consultant because everyone needed technology help setting up work from home options, but its possible. If that is the case, there was a loophole last year allowing someone to withdraw their retirement without penalty. Any withdrawals can be repaid over the next three years.
If you are worried about joint filing liability, ask for a stipulation to hold you harmless from anything he does wrong in terms of tax reporting so that you are only responsible for the taxes on your income. If he agrees, have a lawyer draft the stipulation and, once signed, you can sign a joint return – it probably will cost less overall. If he won’t agree, file separately – you can always agree to amend to a joint filing down the road once you have the information necessary to assess his honesty.