Annulment vs. Divorce: Tax Issues

The Mainstreet site has an article that poses a different perspective on the annulment versus divorce argument but Annulment vs. Divorce: The Financial Differences skirts an important issue about annulment and has deserves an important qualification in Indiana.

The following paragraph has a general application to Indiana:

When a marriage is annulled, the courts usually try to restore each party to his or her original financial state before the marriage occurred. This means that what you brought to the marriage you will usually take away from a marriage. If a couple has accumulated some shared assets prior to an annulment, it can get a little more complicated. The division of these assets is usually handled as if two strangers bought property together. When children are involved, child support and custody agreements are handled just like a divorce."

However, see Thomas v. Smith (html format) for an exception to this general rule.

Here is the twist:

If you are the financially weaker partner, it may be in your best interest to file for a divorce. If, on the other hand, you have substantial assets and can prove that your marriage should never have occurred, filing for an annulment can save you a lot of dough (particularly in spousal support). An annulment can also help one partner avoid liability for another partner’s significant debt. Talk to a divorce attorney about the specific circumstances of your marriage to find out which of these options will work best for you.

Yes, there could be tax issues. Which for me, raises the specter of collusive annulment filings. Or a lot of people storming law offices wanting to annul their marriages because the article does not mention clearly that the grounds for annulment and divorce can differ.

Remember that in Indiana, there are specific grounds for annulment and these need to be proven by a preponderance of the evidence. (For more on Indiana annulments, just click on the annulment link below).