Divorce and Taxes: Don’t fall into the Dissipation of Marital Assets Trap!
Domestic Relations Law § 236 provides courts in New York State with a list of factors to consider when determining equitable distribution of marital assets. One such factor courts consider is whether one of the parties wastefully dissipated marital assets, diminishing marital assets in a way that is excessive, irresponsible, and unjustified.
With tax season upon us, if you are in the midst of a divorce, you must consider whether to file a joint return with your soon to be ex-spouse. First, you must determine if you are eligible to file jointly. If you completed your divorce with an executed Judgment of Divorce on or by December 31 of the last year, you are not eligible to file jointly. If you are still married, you will need to consider your options for filing together.
The idea of doing anything jointly with your soon to be ex may be unappealing; however, it is important to weigh your options carefully with the help of professionals and make decisions based on economic considerations and not emotions. There could be a very good legal reason for not wanting to file a return jointly with your spouse. For example, if you have reason to believe that your spouse is not being honest on his or her return or if you suspect they are committing fraud on their tax returns you will not want to be part of any such filing. You should always speak to your lawyer and tax professional about what to do under these circumstances.
If you can’t find a good reason to not file jointly, you should speak with your tax professional to determine whether you or your spouse would receive a financial benefit from such a filing. In some cases, the savings can be very substantial. If you are the spouse who would receive a benefit, you can demand that you and your spouse file jointly to take advantage of the joint filing savings. If your spouse is requesting that you file jointly (because of a tax savings) and you refuse without a good reason, you may be making a big mistake. Courts have held that failure to file a joint return when it would save marital assets can be deemed “dissipation of marital assets” or “marital waste.” When that is determined, a Court may give you the option to file an amended return or take that money out of the non-cooperative spouse’s portion of marital assets in equitable distribution.
The Defendant in Levitt v. Levitt refused to file jointly with their spouse, resulting in the spouse incurring an additional tax liability of $73,500. In that case the Third Department found that the Supreme Court should have charged the Defendant with marital waste.
In E.R.S v. B.C.S, the Plaintiff alleged that he was forced to file a married, filing separately tax return because the Defendant refused to file a joint return. As a result, he incurred a tax liability of $10,000 instead of a tax refund of $2,000. The parties had previously filed jointly for 15 years. In that case, the Plaintiff claimed that the Defendant owed him $6,000 due to her refusal to file jointly with him. The Westchester County Supreme Court held that the “Defendant failed to defeat [P]laintiff’s claim that her refusal to file a joint income tax return with her was anything but wasteful.” The Defendant was given the opportunity to file an amended return with the Plaintiff and the Court ordered that the parties would equally share the return, giving the Plaintiff a credit for the sums he paid in excess of the approximately $2,000 expected return. If the Defendant failed or refused to file an amended joint 2014 tax return with the Plaintiff, she was to pay the Plaintiff the sum of $6,000 (50% of the amount of the refund they would have received plus 50% of the tax liability the Plaintiff incurred by filing separately) .
It is important to note that equitable distribution of assets in New York does not always mean equal distribution and a Court may look at many factors in determining who gets what when dividing assets. Wasteful dissipation of marital assets is one such factor that a Court may consider, and it is not looked at fondly by the courts.
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If you have questions, don’t hesitate to get in touch with April Dalbec at adalbec@woh.com or 518.487.7600 to see how the Matrimonial and Family Law Team at Whiteman Osterman & Hanna may be able to assist.
