Taxes and Divorce

It was Benjamin Franklin who said there is nothing certain in this world except death and taxes. However, one other certainty in this world (at least in New Jersey) is that the family court can compel you to file joint tax returns with your soon to be ex-spouse, despite your federal right to file separately. Yes, you read that correctly.

The most common reasons that litigants give for not wanting to file jointly is that the other spouse is self-employed and could have manipulated their income, or the parties have been separated for some time. Either way, the last thing you want is to be on the hook for paying taxes. When you were happily married, you did not even bother to review the tax return and merely signed on the dotted line. You trusted that person to do right by you, but all of that has changed with the demise of the marriage and the filing of a divorce complaint. Fraud or not, you want nothing to do with the other party. Not so fast, says the Appellate Division.

Bursztyn v. Bursztyn, 379 N.J. Super 385 (App. Div. 2005) was the first reported case in New Jersey granting family courts the authority to compel a party in a matrimonial action to file a joint tax return to preserve the marital estate. The husband in Bursztyn was a business owner and did not earn a W-2 income. The wife did not want to file a joint return but the court compelled her to do so. To make matters worse, the court imposed a somewhat draconian measure by holding alimony payments in escrow until there was compliance. The holding in Bursztyn is a significant departure from many other jurisdictions. The reasoning behind this

decision is that our trial courts are under a statutory requirement to weigh tax consequences on rulings pertaining to alimony and equitable distribution, and they can also allocate federal tax exemptions for minor children. Therefore, under the right facts, the authority exists for the court to trump the federal right of a married person to file taxes separately.

In Bursztyn, the Court held that there a principled reason would need to be advanced in order for a party not to be compelled to file jointly (yet that term was not defined). And the burden to offer up such a reason is on which spouse? You guessed it -- the one who does not want to file jointly. To be clear, the Court in Bursztyn was not concerned that fraud was an issue, but nonetheless there are troubling aspects to this holding. For example, what if by signing a joint return, you now expose yourself to joint and several liability, yet knew little about your spouse’s finances during the marriage? Every New Jersey family lawyer knows that an indemnification and hold harmless clause in a Marital Settlement Agreement does nothing to bind the IRS. And when that fails, there is very little assurance that innocent spouse relief will save the day.

Before you make any decisions about how to file your taxes this year, you should consult with an experienced New Jersey divorce lawyer, accountant, and perhaps even a tax attorney who specializes in innocent spouse relief. Make sure that you carefully scrutinize any proposed tax return and know your legal rights. At the Law Offices of Sylvia S. Costantino, Esq., LLC, we invite you to come in for a free initial consultation so that we can discuss your divorce case and the options available to you. Serving clients in Monmouth, Ocean and the surrounding counties, we are here to help you through your divorce.