Considerations In Avoiding Becoming A Casualty In the Divorce Wars

Anyone having a passing acquaintance with divorce, whether professionally or personally, will usually concede that it is a steaming cauldron of emotions bubbling up from broken dreams, anger, fear about the future, and the potential for financial disaster. This article addresses issues for CPAs who serve clients that are in the midst of a divorce - whether personal or professional. While the divorce may begin amicably, it frequently ends differently.

CPAs should consider two broad categories of issues in connection with the future, ongoing, or past divorce of married clients for whom tax returns are prepared. They are:

  • Timing of divorce announcement
    • Decision time
    • Before the divorce is final
    • Divorce with a business interest
    • Discontinuing service
    • Providing services post-divorce
  • Requests for records
    • Informal requests
    • Formal requests by subpoena or court order
    • Confidentiality issues when responding to records requests
    • Requests for affidavit or subpoena for deposition in divorce or support proceedings

Although the facts and circumstances surrounding these issues may vary widely, understanding the pitfalls, as well as your legal and professional responsibilities, can help you avoid stepping into the flame.[1]


Did you ever have to make up your mind?

You pick up on one and leave the other one behind

It's not often easy and not often kind

Did you ever have to make up your mind? (John Sebastian – Lovin Spoonful)

Decision Time

When a married couple for whom a CPA provides solely income tax return preparation and related services (no business entity) announces their divorce, their interests have instantly become divergent until the divorce becomes final, regardless of whether it is a “friendly” divorce. 

Upon learning of the divorce, the CPA should immediately consider whether he or she wishes to continue providing services to both spouses during the proceedings. Often, the clients assure the CPA that they will not involve the CPA in the drama. Nevertheless, the CPA must make an independent decision whether this involvement will occur. If no conflict arises in providing tax services to both spouses, and care is taken to maintain the confidentiality of their information[2], there is no reason why both parties cannot continue to be clients.

Before the Divorce is Final

The decision to provide tax advice to both spouses before the divorce is final gives rise to a conflict of interest. A conflict is raised because the advice may provide a benefit to one spouse at the expense of the other, either at present or in the future. For example, if a couple in a community property state has withholding or estimated tax payments, the CPA should inquire if either of the spouses claim the tax payments as separate property. If so, the ownership of the payment needs to be resolved prior to filing. Another example includes whether to capitalize or take an IRC §179 deduction for a rental property addition. Yet another choice relates to filing status, – an issue on every individual income tax return and, for divorcing couples, how to file may have additional importance.

When a conflict of interest has been identified, providing tax advice to both spouses under this circumstance is not recommended. While some conflicts may be waived, others cannot be. If an actual conflict is identified, the CPA should consult with his or her own counsel.

Many divorcing couples will try to file a joint return until the last full year[3] of their marriage[4] as it often produces a lower total tax than filing separately. The down side of a joint return is the joint liability created for the return and for the taxes owed. This joint liability issue should be addressed in the filing instructions accompanying the completed tax return.

If the couple elects to file a joint return, the CPA should require that each spouse provide the CPA with a letter of instructions (or a joint agreement) from their divorce counsel acknowledging the existence and acceptance of the joint liability risk. This document also should address other potentially controversial issues related to the joint return such as who pays the tax and from what funds, who is entitled to any tax refund, who will pay to defend the return positions if they are challenged, and who will pay any additional tax, penalties or interest assessed.

When preparing such joint tax returns, certain decisions may be required, such as whether income or assets are characterized as community or separate property. A multitude of factors affect both current and future tax liabilities as well as divorce settlements. In this situation the CPA should:

  • Inform both spouses of the issue that must be resolved,
  • Ask both spouses to confer with independent counsel to determine the most favorable tax treatment for them,
  • Require both spouses to confirm, in writing, the preferred tax treatment, and
  • Provide a timeframe in which the decision must be made.

If both spouses are not represented by counsel, or they do not wish to incur the expense of seeking additional tax advice, the preparation of joint tax returns becomes more complex.

Engagement letters, signed by both spouses if a joint return is to be filed, should be obtained prior to commencing services. The engagement letter should:

  • confirm that both spouses were advised to seek external tax advice regarding filing status,
  • list the filing status to be adopted on the tax return,
  • acknowledge the existence and acceptance of the joint liability risk,
  • acknowledge the existence of a conflict of interest, and
  • waive their rights to any future claims related to the filing status chosen for the returns to be prepared and filed.

In the event that the spouses elect to file as married filing separately, separate engagement letters should be issued and signed by the individual spouse. In addition, a document should be signed by each spouse, acknowledging the conflict and waiving rights to future claims related to the filing status adopted.

In either case, consult with your own attorney regarding language to use in acknowledging the joint liability risk and the conflict of interest, and in waiving future claims related to the filing status selected.

If one of the spouses decides at the last minute that he or she does not wish to file a joint return, the decision should immediately be explained to all concerned parties, and a decision made by the CPA whether to continue to provide services to either client.

A Divorce with a Business Interest

Divorcing clients owning a business complicates the process. When the married couple and their business were one big happy family, the interchange of information and documents was probably very casual. Once the marriage fails and the former spouses become adversaries, legal distinctions become important.

If the business is simply a Schedule C item and not a separate legal entity, the issues noted in the discussion above are adequate. If the business is operated as a separate legal entity, (LLC, corporation, partnership), possibly with other, unrelated parties, the landscape changes. The entity becomes an additional client with rights of its own and duties owed to it.[5]

With respect to requests for tax and accounting information related to a business owned in whole or in part by either spouse, CPAs must consider both confidentiality obligations and whether the requestor is legally authorized to request the records on behalf of the business or has an appropriately executed consent. Even when such requests are informal, CPAs should consult with their own attorney prior to deciding how to best respond.

The “Requests for Records” section addresses the CPA’s responsibilities when responding to such requests. These requests should be and typically are complied with based upon the consent of the entity. Moreover, the CPA in possession of the records must require the requesting parties to honor the restrictions contained in the AICPA Code of Professional Conduct.

Discontinuing Service

If the CPA decides to terminate the relationship with one or both spouses, attention must be paid to the process in order to ensure that the termination does not occur at a time or under circumstances that would disadvantage the terminated client. The termination should occur when there are no deadlines in the immediate future that would make finding a successor CPA challenging. In addition, the client should be advised of any upcoming deadlines. Courtesy and cooperation are critical. Keep it simple, civil, and clear.

While the CPA is often the decision maker, sometimes the choice is made by one of the clients or the client’s counsel. Irrespective of who makes the decision to terminate, communication with the former client must be transparent, direct, and clear. The CPA should terminate the engagement in writing and copy all concerned parties, including counsel. Concerns to be addressed in this communication include:

  • Access to historical tax data,
  • Cooperation with the successor CPA, and
  • Authorization to share information with the successor CPA. If tax return information is requested, the authorization must be in accordance with IRC §7216.

In working with the successor CPA, consider advising them in the same manner that predecessor auditors coordinate with successor auditors in accordance with the guidance outlined in AU-C §510 Appendices B and C. In other words, advise the successor that data is provided for their knowledge and background, and that they must make their own determination as to the propriety of the tax accounting and return positions in the event that they may affect the successor’s work.

Irrespective of how a client leaves a CPA’s practice, consideration must be given to record retention. Records should be retained for the designated time period defined by the accounting firm’s retention policy, even if the client is no longer active in the practice. Tax returns that generate net operating loss, passive loss, capital loss, or other carryforwards or credits should be maintained for periods consistent with the use of the carryforwards involved and the relevant tax statute of limitations, which may be longer than the designated time period defined by the accounting firm’s record retention policy.

Providing Services Post-Divorce

Providing services to one or both spouses post-divorce does not generally create a conflict of interest. However, the duty of confidentiality survives the termination of both a professional relationship and the marriage. Information learned through one confidential client relationship cannot be used for the benefit of another client.

The Tax Cuts and Jobs Act (TCJA) eliminated deductions for alimony payments required by post-2018 divorce agreements. As a result, the inconsistent treatment between divorcing spouses (the payor receiving a deduction, yet the recipient is not including the payments as income) is less likely to occur. This TCJA treatment of alimony payments applies to payments required under divorce or separation instruments that are: (1) executed after Dec. 31, 2018 or (2) modified after that date if the modification specifically states that the TCJA treatment of alimony payments now applies.

There is no change in the federal income tax treatment of alimony payments required by divorce agreements executed before 2019.



Informal Requests

As the divorce proceeding progresses, the attorneys will often issue letter requests for documents. Typically, where no business is involved, these requests are made and fulfilled with relative informality between counsel for the divorcing spouses and with no involvement by third parties, such as their CPAs. However, where one spouse has no access to historical tax and related financial records and the other is uncooperative, third parties possessing these records will often be requested to provide records. This process becomes more adversarial in subsequent years when the spouses are filing separate returns and one spouse seeks to examine the other’s earnings and finances, including their income tax returns, often in spousal or child support proceedings.

As noted above, these requests are often informal. Letters from attorneys are accorded no legal authority, and are similar to any informal request for records that may be received from a bank or mortgage broker[6]. If the clients whose records are being sought by the attorney provides a written consent to release the records (in compliance with IRC §7216 if tax return information is requested), they can be provided. However, in the absence of such consent, the CPA cannot provide the requested information in response to the informal request

Formal Requests by Subpoena or Court Order

Formal requests are civil subpoenas signed by attorneys, are usually issued by completing a form, and are generally not considered to be court orders. There are also civil subpoenas signed by a judge (or a court clerk in the name of a judge) which may be considered a court order. Note that some states deem subpoenas issued by attorneys to be court orders. As noted above, IRC §7216 prohibits production of tax return information in response to a non-court order civil subpoena signed by an attorney absent the consent of the taxpayer or a court order. CPAs are not lawyers and should not attempt to discern if the subpoena served on them is validly issued, and is or is not a court order. Seek assistance from your own attorney is recommended. Moreover, some professional liability insurance carriers may provide coverage for subpoena assistance.

Confidentiality Issues When Responding to Records Requests

When receiving such requests, CPAs may be wondering about client confidentiality, IRC §7216, or “don’t they already have these records?”

If the request addresses a joint income tax return then, of course, either spouse has the right to obtain a copy of the return and supporting documentation from the return preparer without the permission of the other. See, e.g. IRC §6103 (e)(1)(B).

If the request addresses separate returns prepared either during the marriage or subsequent to its end, many states have enacted laws requiring former spouses in divorce related proceedings[7] to give the other a copy of their income tax returns[8]. Sometimes these requests are limited in time or number (e.g. request can be made only once a year) or by other procedures. Generally, state laws incorporate a process in which tax returns are required to be disclosed by one of the former spouses to the other spouse. However, these laws are usually written to compel one of the spouses to produce their tax return but not to compel third parties to produce those tax returns. Third parties such as CPA return preparers are subject to restrictions for the production of tax return documents. Among those restrictions is IRC §7216

IRC §7216 casts a wide net in its definition of protected “tax return information.”

“Tax return information is all the information tax return preparers obtain from taxpayers or other sources in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns. It also includes all computations, worksheets, and printouts preparers create; correspondence from IRS during the preparation, filing and correction of returns; statistical compilations of tax return information; and tax return preparation software registration information. All tax return information is protected by §7216 and the regulations.”[9]

IRC§7216 prohibits the disclosure of “tax return information” to persons other than the taxpayer unless the taxpayer consents to the production. There are exceptions[10], however, which permit production in the absence of consent:

(a) under any other provision of the Internal Revenue Code that permits disclosure,

(b) pursuant to a court order that compels production,

(c) in response to a subpoena issued by a federal or state grand jury,

(d) pursuant to an administrative order or subpoena from any federal agency, and

(e) pursuant to an administrative order or subpoena from any state agency or commission charged with licensing or regulating tax return preparers.

These exceptions do not include a state or federal court subpoena in a civil case signed by an attorney, though an order enforcing that subpoena or a subpoena signed by a judge would probably satisfy the production pursuant to such court order.

Thus, in a divorce or spousal/child support matter absent (1) the consent of the taxpayer whose returns are involved or (2) a court order, IRC §7216 prohibits production in response to an attorney’s letter or even to a civil subpoena issued by an attorney. 

Ignoring the subpoena because one is confident in the proscription to production offered by IRC §7216 and waiting for a court to issue an order compelling production of the tax return information is not the best option. First, if you are incorrect and the subpoena is in a form considered to be a court order, you may potentially be held in contempt of court. Even if it is not a valid subpoena, a state court may not look favorably upon the refusal to honor it, even if it is arguably wrong[11]. Thus, the court may attempt to impose costs of obtaining the order, despite the court being on questionable ground. Arguing with a superior court judge is not recommended, and even if your argument is successful, you have likely incurred attorney fees to do so, which are unlikely to be recoverable.

The solution to this problem is to act. Contact the attorneys involved and explain the dilemma created by IRC §7216. If the attorneys are uncooperative or contentious, contact your own attorney and your professional liability insurer for assistance. If the party whose records are being sought ultimately must produce them – because the law requires production – he or she may simply provide written consent to make the requested production. Indeed, most demands for the production of tax returns are addressed in this manner. If the parties believe they have a legal basis to resist the production, impose the burden upon them to seek a court determination on the issue[12]. It is not recommended to: (1) do nothing; or (2) refuse to engage in the process to make the production consensual. 

Requests for Affidavit or Subpoena for Deposition in Divorce or Support Proceedings

When clients divorce, CPAs may be presented by counsel for one of the spouses with sworn affidavits for signature or compelled to sit for a deposition. A sworn affidavit is any written document in which the signer swears under oath that the writing is true.[13]

With respect to receiving a subpoena for deposition, experience has taught us that in this situation, there are three rules we must never violate.

  • Rule One – Have an experienced attorney prepare you for your deposition and be present to defend you at your deposition.
  • Rule Two – Don’t be a volunteer expert witness.
  • Rule Three – Testify factually about what you know. Avoid assumptions and avoid opinions or characterizations of the facts.

Rule One. The attorneys who will be taking your deposition will have an agenda and a series of points they will seek to establish through your deposition testimony, which is given under oath. The points may relate to, among others, the identification and location of assets, location of records, characterization of income and the assets which produce that income (e.g., community or separate property), and the history of asset disposition or acquisition. By attending a deposition without preparation or legal representation, you will have limited or no information regarding the type of questions that can be asked, those that are objectionable, and if the questions are leading you down a path of making an uncomfortable admission or conclusion.

Your attorney, who may be hired on your behalf by some professional liability insurers, can prepare you by reviewing issues that may arise at your deposition and the most appropriate way to respond. Your attorney also may be able to speak with the attorney who noticed the deposition in order to i) understand the issues in the proceeding, ii) what the attorney may be seeking to learn in the deposition, and iii) if there are some contentious areas of questioning or implications of possible CPA error, lack of disclosure, or bias in your prior work. Most importantly, you do not wish to appear at your deposition unprepared and unrepresented. 

Rule Two. Working as an expert witness can be exciting and remunerative work, which provides a forum for the CPA to demonstrate his or her knowledge, analytical and organizational skills. It is not an appropriate engagement in every setting – especially when you have not been retained to be an expert and you are being asked to give opinions that may be adverse to your client or former client.

A CPA cannot be made to be an expert witness against his or her will. Questions that can be posed include those related to the CPA’s work product, those that are relevant to the case at hand, and about the technical or professional standards on which the work product is based. To go beyond those issues and ask questions based upon hypothetical facts or circumstances, or questions unrelated to the work product of the testifying CPA is generally improper.

If asked to testify in a manner in which the CPA is asked questions, the answers to which may be adverse to a current client or former client, the CPA must consider whether he or she can maintain objectivity and integrity if the CPA chooses to respond. 

The Integrityand Objectivity Rule of the AICPA Code of Professional Conduct (see ET §1.100.001) states, “In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.”

Included under this section is §1.110.010, Conflicts of Interest for Members in Public Practice, which states: “A member or his or her firm may be faced with a conflict of interest when performing a professional service. In determining whether a professional service, relationship or matter would result in a conflict of interest, a member should use professional judgment, taking into account whether a reasonable and informed third party who is aware of the relevant information would conclude that a conflict of interest exists.”

A sound risk management principle is that no professional, including CPAs, should permit themselves to be placed in a position or accept an engagement where their objectivity and integrity can be questioned. If an attorney seeks to place the CPA in an uncomfortable situation, there is probably a reason for the discomfort. Therefore, seek advice on the wisdom of the engagement prior to commencement. If you have any doubt, trust your instincts and seek advice.

Rule Three. If a CPA is compelled to testify about work he or she has done in the past or about events heard or observed, the answers should be responsive to the question but limited to the facts, events or observations – no more. Avoiding characterizations and opinions also avoids venturing into expert witness territory. Compliance with Rule One generally means that Rule Three will not be violated.

Being asked to sign an affidavit is similar to being asked to be an expert witness, or rather, similar to being coerced into being an expert witness. The attorney who makes the request that you sign typically drafts the affidavit with an agenda. That agenda seeks to establish some fact or circumstance which may intrude into the realm of the CPA’s expertise, in other words, creating an expert opinion. The affidavit also may be adverse to a client or former client. If the CPA is unaware of the exact issues in the legal matter for which the affidavit is being sought, the CPA may find it difficult or impossible to determine if it is adverse to a client or former client.

The better strategy when asked to sign an affidavit, or even if asked to draft it or provide its contents, is to decline.



Clients who are going through a divorce present CPAs with many opportunities to be drawn into their divorce wars. A more finely tuned appreciation of those opportunities, as noted in this article, may help to avoid an unwanted role in that divorce.

By Arthur V. Pearson, Founding Shareholder, Murphy, Pearson, Bradley & Feeney

Art practices accounting and tax malpractice defense, as well as tax and business transactions. His broad of experience in taxation issues, combined with years of successfully representing clients in jury trials, instills confidence and trust in his ability to successfully resolve complex tax issues.

Updated October 2020


[1] State law and board of accountancy regulations applicable to conflicts of interest vary by jurisdiction. Consult with counsel when these issues arise.

[2] In discussing the engagement with the couple, confidentiality should be addressed. For years in which a joint return is/was prepared, there should be no expectation of privacy. Any documentation provided, or discussions relative to preparation of the joint tax return, is available to both spouses. However, for years in which separate tax returns are prepared, the CPA should not provide information from one spouse to the other without a court order or subpoena and should manage any expectation to the contrary.

[3] If divorcing couples do not have a final divorce decree by December 31st, they can usually file a joint return for the last full year of their marriage.

[4] See IRC §7703 for the Code’s definition of “marriage” and IRS Publication 504 for the myriad issues relating to tax returns in marriage and divorce.

[5] A single member LLC is a disregarded entity for tax purposes and the member will likely report the income of a Schedule C to his/her form 1040. This however, doesn’t obviate the fact that for state law purposes, the LLC remains a separate legal entity.

[6] In many states divorcing spouses are required by law to provide tax and financial documentation and information to the other side upon request or as part of the proceeding. Based upon these laws, informal requests have the compelling force of law, at least as to the parties.

[7] Proceedings such as spousal or child support adjustments, child custody, and amendments to a divorce decree.

[8] See e.g., California Family Code §3664 and §3665.

[9] IRS “7216 Frequently Asked Questions” 7-15-20, Q&A #5.

[10] Exceptions are found in Treas. Reg. §301.7216-2.

[11] Consider that many state court judges may have little or no experience in or knowledge of taxation or of the intricacies of the federal tax code. Therefore, the privacy limits imposed by the Code may not initially be appreciated.

[12] A letter to the attorney representing the taxpayer whose records are sought indicating that production will eventually occur unless they seek protection from the court may hasten the proceedings.

[13] From

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