My wife and I have been separated since December, and have not spoken since June. Before we separated, we suffered a loss of income and were unable to pay the mortgage on a second home (that used to be a primary residence until she insisted that we buy another home and move). This home went back to the lender at auction last week. While I do not expect a deficiency judgement, I do expect to receive a 1099C, and therefore suffer ruinous tax consequences due to the cancellation of debt.
When she moved out, she ceased paying all shared debt. Since that time, I have found other employment which has enabled me to keep up with the mortgage on our primary residence and formerly shared vehicle. My only hope at this point to avoid the tax consequences is to document insolvency on my next tax return, due to the mortgage and car loan debt exceeding the fair market value of all of my assets. However, since we cannot file for divorce until December, and it will no doubt not be completed before the end of 2011, by law we will still have been married for all of 2011, which will force me to file as “married filing separately.” With her income (low six figures) and the fact that she has had virtually no bills since last December, I would imagine that she has been able to save quite a bit of money and/or acquired assets which may negate my ability to document insolvency.
I understand that portions of this situation require the advice of a tax attorney, but from a family law perspective, is there any way I can document that since she has not contributed to shared debt, any assets she may have acquired should not be taken into account for insolvency purposes? Barring that, is there any other solution to this situation that I am not thinking of?
Any advice appreciated greatly.