Although not always an issue in a Texas divorce, tax matters can become a significant issue, especially in high net worth divorces or divorces involving the division of a business. A Texas appeals court recently decided a second appeal in a case involving a mediated settlement agreement (“MSA”) with potentially conflicting provisions related to the parties’ taxes.
According to the appeals court’s opinion, the parties’ MSA was divided into two parts. Part I was what the parties referred to as the “boilerplate” section and Part II included specific provisions addressing the children and the property division.
Federal tax liabilities were addressed in two provisions, one in each part. The provision in Part I, identified by the appeals court as the “indemnity term,” provided that the parties would equally share any income tax refund or federal tax liabilities from their taxes through 2019, with each holding the other harmless from half of the tax liabilities. The relevant section under Part II, identified by the appeals court as the “IRS regulations term,” stated, “Income Taxes due for 2018 and 2019: According to IRS rules and regulations.”