When Divorce Property Transfers Collide with IRS Liens

Divorce is stressful enough without the IRS showing up at your door. Dividing property, planning finances, and moving forward with life requires careful legal attention. But what happens when an IRS tax lien—something you can’t see in the property records—suddenly appears?
A cautionary tale involving a fictional couple—let’s call them Mark and Linda Taylor—illustrates the hidden dangers.
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The Taylor Divorce and the Family Home
Mark and Linda finalized their divorce in December 2001. As part of the settlement, Mark transferred his share of the family home to Linda. In exchange, she paid him $60,000 in cash and agreed to take over the mortgage.

Linda did what most people would do: she ran a title search before recording the quitclaim deed. The search showed no liens beyond the mortgage. Confident she had clear title, she recorded her deed at the end of December.

What neither spouse knew was that earlier that same month, on December 2, 2001, the IRS had quietly made an income tax assessment against Mark for an old, unpaid return. By law, that assessment created a lien against all of Mark’s property interests—even though nothing appeared in the records at the time. Almost a year later, the IRS filed a notice of tax lien and claimed its rights were superior to Linda’s ownership.

Why the IRS Could Make That Claim
This scenario turns on several sections of the Internal Revenue Code:

• 26 U.S.C. § 6321: When a taxpayer fails to pay federal taxes after demand, a lien automatically arises on “all property and rights to property” belonging to the taxpayer.
• 26 U.S.C. § 6322: That lien takes effect at the time of assessment and continues until the tax liability is paid or becomes unenforceable by lapse of time.

That means when Mark signed over the house, the lien had already attached—even though Linda had no notice of it.
The only potential protection for Linda was to prove she qualified as a “purchaser” under:

• 26 U.S.C. § 6323(a): Certain buyers of property can take priority over the IRS lien if they purchase before the government files its notice.
• 26 U.S.C. § 6323(h)(6): A purchaser is defined as someone who, for “adequate and full consideration in money or money’s worth,” acquires an interest in property that is valid under local law against subsequent purchasers without notice.

Linda had clearly paid $60,000 in cash. But she also gave up her right to future alimony and released Mark from sharing the mortgage debt—things the Treasury Regulations specifically say are not “money or money’s worth.” (See Treas. Reg. § 301.6323(h)-1(a)(3).)

That left her legal footing uncertain, and the IRS’s claim loomed over her ownership.

The Practical Lesson
The lesson for divorcing spouses is clear:

• If your spouse has ever filed a separate tax return, confirm that taxes were actually paid.
• Do not rely solely on a routine title search. Federal liens can exist invisibly from the moment of assessment.
• For complete assurance, consider making a direct inquiry to the IRS. Yes, it may feel like “poking the bear,” but without it, you risk inheriting a tax problem you never saw coming.

Protecting Yourself in a Texas Divorce
Property division in divorce is not just about splitting assets—it’s about avoiding hidden liabilities. IRS liens, retirement division, and complex marital estates require experienced legal guidance.

At The Palmer Law Firm, we have decades of experience in Texas divorce law, and we know how to safeguard clients from financial traps like secret tax liens.
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If you’re preparing for divorce, don’t risk surprises that could cost you your home or financial stability. Schedule a confidential consultation today.
📞 Call The Palmer Law Firm, or visit www.thepalmerlawfirm.com to secure your future with experienced legal representation.

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