Separated Spouses and Joint Income Tax Returns

1. I am in the midst of a divorce with my husband, a self-employed builder. I am hesitant to file another joint tax return with him. However, he is insisting that I do so, because he will save $10,000 on his taxes. Am I obligated to file a joint tax return with my husband now that we are legally separated?

The answer to this question will stand on the individual facts of your case. The important considerations are:

a. Whether there are significant financial benefits to filing a joint return.

b. Whether there is evidence of past fraudulent returns.

c. Whether the tax returns will be prepared by an independent expert.

d. Whether the party seeking the joint return executes a hold harmless and indemnification agreement.

e. Whether there is an absence of a principled reason for refusing to file jointly.

f. Whether there are funds to adequately compensate the adversely affected spouse.

2. What is the most important New Jersey decision that addresses the issue of whether separated spouses must file a joint tax return?

The seminal case is Bursztyn v. Bursztyn, 379 N.J. Super. 385 (App. Div. 2005). In the Bursztyn case, the parties lived a very extravagant lifestyle but did not pay all of their taxes. At the time of their divorce trial, the parties had paid their tax obligations through 1998. However, they still owed substantial back taxes for the years 1999 and 2000. As of the date of the trial, they had not filed tax returns for 1999 through 2001. At trial, a tax expert testified that the parties would save a significant amount of money if they filed joint tax returns for those years. Nonetheless, the wife refused to file further joint tax returns with her husband. Ultimately, the court ordered the wife to file the joint returns. Moreover, the court ordered the husband to execute a hold harmless and indemnification agreement for any allegations of “fraud relating to the returns.”

The Bursztyn holding is the first reported New Jersey case providing that a court has the authority to compel parties to file joint tax returns. It is important to note that the Bursztyn court recognized the financial exposure of a spouse in filing a joint tax return. Accordingly, the court required the husband to indemnify the wife for any fraud relating to the filed returns. However, this protection may not be bullet proof. The IRS does not shield a spouse from joint and several liability exposure.

After Bursztyn, it will be much more difficult for a spouse to avoid filing a joint tax return in the midst of a separation. It will be harder to rely on a claim that a former partner is possibly manipulating the books of a company to avoid filing a joint return. There will have to be some concrete proof presented to the court to show that one spouse is preparing and filing a fraudulent tax return. A spouse will have a higher burden for not wanting to file a joint tax return, and must establish a “principled reason” for not wanting to do so.

In summary, if there is a significant financial benefit for the family in filing a joint tax return, then absent compelling reasons, most courts will require it.