What Happens to a Joint Tax Refund During a New York Divorce?
Questions emerge during tax season for couples who are separated or divorcing. For instance, what should the couple do if they file a joint tax return and receive a significant refund? Does the spouse whose account the refund is deposited in get to keep the entire thing?
Like other financial concerns that might come up during divorce proceedings in New York, the answer depends on where the refund money came from.
A tax refund might be marital property
New York State uses a process known as equitable distribution to divide marital property. Usually, any property purchased during the marriage is considered marital property except in exceptional circumstances.
The same applies to tax refunds for income generated during the marriage. It becomes part of the marital estate regardless of whether it was in the name of one spouse or the other, or whose bank account it was deposited in.
However, this doesn’t mean that all tax refunds will always be split equally between the two spouses. New York courts divide marital property fairly and equitably depending on the circumstances.
What if the refund covers more than one tax year?
The timing of your filing could complicate the situation. If you’re separated (but not completely divorced) within the same year, a refund might be attributed to income that you earned while you were still married.
When you file for the tax return, it’s important to determine whether or not it’s property of the marriage or one spouse. If separation occurs (but is not finalized), a refund might be attributed to activity that occurred during the marriage. That automatically makes it property of the marital estate and subject to equitable distribution.
A person may need to consider the tax return and the circumstances behind the refund to determine how much of it should be considered marital property.
Do separated spouses have to file jointly?
Marriage doesn’t automatically require both spouses to file jointly for federal income tax. Filing choices depend on the individual situation.
While filing jointly might result in tax benefits, there are serious ramifications involved with such an arrangement. Typically, both individuals filing a joint federal return are liable for the taxes due in the return, as well as any additional taxes, interest, and penalties that apply.
Therefore, a spouse cannot blindly agree to file jointly just because the other spouse claims it would save more tax.
What if one spouse takes the entire refund?
It would be wrong for the receiving spouse to assume that once they deposit the money, it becomes theirs alone.
The joint refund money can be considered marital property. Depending on the case, it may be considered when dividing assets equitably. The court can also consider any money one spouse misused when dividing assets equitably.
Documentation is vital in such a scenario. Copies of tax returns, refund checks, and even emails sent between the two spouses can help in this matter.
Address tax issues during your divorce
Although tax returns are small compared to assets like your home, retirement account, or a family business, disputes over tax returns are not uncommon.
Divorcing individuals should consider discussing tax filing, refunds, debts owed in connection with taxes, and future liability during the divorce process. This can be done with the help of a New York family lawyer.
Talk to a Westchester County, NY Divorce Lawyer Today
The Law Office of Robert S. Sunshine represents the interests of Westchester County couples during their divorce. Call our Westchester County family lawyers today to schedule an appointment, and we can begin addressing your concerns right away.
