Tax indemnity is language in a divorce decree or settlement agreement requiring one spouse to protect or reimburse the other for specified tax liabilities.

Joint tax returns create joint and several liability. Both spouses are fully responsible for the tax shown on a jointly filed return regardless of who earned the income. A tax indemnity provision in the decree does not eliminate this liability to the IRS but it gives the indemnified spouse a claim against the other. Be aware of the “innocent spouse” status if the facts apply to you.

Get a tax advisor involved in any case with significant tax complexity past joint returns with potential audit exposure, capital gains, retirement account distributions, or business income.