Home is where the debt is?

Anonymous — Tue, 09 Oct 2007 20:30:35 -0800

I'm a woman, divorced, being audited by the IRS, in some credit card debt and have problems with my rental history. Should I sell my home? I got divorced last year after 10 years with my ex, who was an irresponsible mess. We are now being audited by the IRS for the tax year 2005. I moved out of our marital home in October of 2005 after finding out that my ex was smoking meth on a daily basis. Understandably, I was upset and moved in with a friend, then on to an apartment with another friend.

I refinanced the house to pay off my ex, since he is frequently jobless, in multiple tens of thousands of dollars in debt, and addicted to meth. I assumed it would be doable and budgeted accordingly. Then when I changed my filing status at work from married to single, my income went down $300/month. Okay, living close to the bone, but doable. A series of home and car repairs and illnesses later, and I have acquired $5000 in credit card debt. It is a zero interest card for the next year, so again, able to catch up, right?

Now the IRS suddenly audits my taxes. It seems ex-husband told me I could deduct his business expenses as they were part of his income. According to his former employer and the IRS, they were not. Ergo, we owe taxes on $17,000 now and will most likely be audited for 2006 as well.

I have no records showing that I lived anywhere but my actual home until January 4, 2006. The friend whose apartment I moved into decided to break her lease the day after I moved out and back into my marital home during my divorce in 2006. I am being named in a lawsuit alongside said friend (now former, by the way) by the apartment building people, so I cannot ask them to give me documents showing that I moved in there in December of 2005 since they are trying to collect a debt from me, even though I didn't break the lease (turned in keys, parking pass, etc. the day before, but was told I didn't need any documentation to take myself off the lease and trusted former friend to be responsible). The leasing office called me the next week and accused me of collusion, which I denied, and refused to remove me from the lease at that point, even though I had paid all funds and turned in everything prior to said friend "moving out suddenly in the middle of the night." Guess what? Said friend also did meth with my ex and also has no income or assets.

I refinanced my home to pay off my ex; the house now appraises at $18,000 less than it did last year when I got the loan. So, technically, I am $18k in the hole already if I should try to sell it in the soft market. Not a good position.

I have spoken with other friends in the same position (i.e., divorced from a jobless spouse and being audited) and am aware of Innocent Spouse. I am in the process of getting together as much paperwork as I can to show that since the items in question are HIS business expenses, and I believed I was filing correctly, and that we separated that year as a result of his drug abuse and my emotional distress (which I believe counts as spousal abuse in the eyes of the IRS). However, even if I claim Innocent Spouse and it is granted, if my ex has no income or assets to seize, I have reason to believe that the IRS will seize my home as a material asset for the monies owed.

Should I try now to begin the process of selling my home? Even if I sell it at a loss, which I almost certainly will, it would free up monthly income I could put aside to face the impending IRS debt. I am worried if I do put the home up and manage to sell it, the supposed $2000 I owe from the bad-friend-apartment-deal will stop me from finding a place to live.

I'm faced with so much stress and paperwork and the clock is ticking. Sell or keep the house? I helped design and build it in 2003, so it is newish, and has immense sentimental value to me. It's also 15 minutes from my office. I am due a raise in February of an unknown amount which may make the difference in affording the house and paying off my debt, but for now, all I see is debt and veiled threats and am afraid that if I don't cut my losses I will regret it. I live in Texas, by the way.

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Home is where the debt is?