Texas marital property law is different than most other states because it is based on a scheme of community property. In dealing with filing of tax returns, this difference can cause a significant impact on divorcing spouses.
In community property states, each spouse, if filing separately, reports one half of the other spouse’s community income, but the tax liability on each return is still determined separately. Each spouse who files separately pays tax on one half of his or her spouse’s community income. Then, each spouse may have separately property income and deductions as well.
Because of this complicated scheme, some divorce courts may attempt to mandate that divorcing spouses file a joint return for the final complete years of the marriage. In doing so, divorce courts may only weigh the immediate financial gain to the marital estate instead of considering the future risks and liability of filing a joint return. A spouse may rightly not wish to file jointly for reasons beyond the tax savings that a joint return may provide. Such reasons a spouse may provide to a judge to factor against filing a joint return may include:
- Spouses share joint liability for the tax due on a joint return.
- Nonmarital assets of each spouse may be subject to liability for the tax attributed to the income of the other spouse.
- Obtaining relief from joint liability under the “innocent spouse” laws can be difficult to establish.
- Indeminfication is an imperfect protection from joint liability because the IRS is not bound to pursue the indemnifying spouse and because collection efforts may be difficult to impossible.
- A joint return is signed under penalty of perjury with felony consequences.
- If a spouse has already been deceived in the relationship, distrust weighs against trusting the other spouse’s reporting on a tax return.
- Questions of a tax preparer’s loyalty to one spouse or the other can create issues regarding filing a joint return.
- For the spouse with little or no income, signing a joint return may pose considerable liability risk with no appreciable benefit.
Generally speaking, a Texas divorce court lacks jurisdiction to order how spouses will file their federal tax return. This is because a state court lacks jurisdiction to force behavior in the federal realm. Another method of addressing the financial impact on the marital estate from a spouse’s hesitation or refusal to file a joint return is to offset the financial impact in some other manner in the division of the community property.
Hat tip to Robert S. Steinberg and his article “When the Court Orders an Unwilling Spouse to File Jointly” from the Fall 2014 edition of ABA Family Law Section’s Family Advocate magazine.