Further regarding a Nebraska Appellate court decision in Bock v. Dalbey (see post of 10/5/11, “Can State Court Order Unwilling Spouse to File Joint Return”), upholding a lower court’s order that the wife join in filing joint returns with the husband, an even more compelling argument can be made that the ruling is incorrect and ill-advised.  Most state marital property division laws require the trial court to identify and distribute the marital assets and liabilities between the spouses (e.g., see Florida Statutes 61.075 (1).).  In making “equitable distribution” the court divides inter se, that is, as between the spouses, liabilities incurred during the marriage for proper marital purposes, regardless of which spouse is the named debtor.   Clearly the tax liability on income earned during the marriage by either spouse is a marital liability that must be distributed among the spouses.  The court may order one spouse to pay all of the liability or allocate the liability among the spouses.  In either case, the court is addressing each spouse’s share of a marital obligation and is not creating a new obligation to a third-party that did not exist during the marriage.

 Under federal tax law, the Internal Revenue Code, each spouse is individually liable to the Treasury for the separate tax on his or her separate taxable income unless the spouses together elect to file a joint return.  A joint return election pursuant to Section 6013(d)(3) has the effect of making each spouse liable, not only for his or her separate tax debt, but also for the tax debt of the other spouse, now made a joint and several liability.  Thus, the signing of a joint return makes the signing spouse liable to a third-party creditor, the U.S. Treasury on a new debt. Moreover, the unpaid tax liability on the joint return creates a federal tax lien on all of the signing spouse’s marital and non-marital property rights.  Federal law affords spouses a choice: follow the general tax scheme of separate liability or elect the rate-splitting and other benefits of a joint return at the expense of becoming jointly and severally liable.  A spouse not wishing to file a joint return might otherwise be required to file no return and thus not be liable to IRS.

 The state court in ordering the unwilling spouse to file jointly frustrates the federal scheme of separate liability absent an election and therefore violates the Supremacy Clause of the U.S. Constitution.  Congress intended that filing a joint return and assuming the burdens and benefits of joint filing should be elective.  Had Congress intended to allow state courts to mandate what was made elective, it could have so stated.  With regard to alimony IRC Section 71(b) (1) (B) permits state courts to order that payments otherwise qualifying as taxable alimony be designated as non-taxable and non-deductible. This provision was inserted into Section 71 because Congress intended that divorcing spouses be permitted to decide the allocation of tax benefits and burdens as between themselves. Section 6013 affords state courts no such leeway because Congress is the proper authority to establish the standard of tax return liability as between the taxpayer and the Treasury. 

 The Nebraska court also, I believe, exceeds its mandate to distribute martial assets and liabilities.  The effect of the court’s order is to create and impose an entirely new liability on the unwilling spouse, ordered to sign a joint return.  The court creates a liability of the unwilling spouse to the Department of the Treasury, a tax debt subjecting her assets, marital and non-marital, to the federal tax lien.  The trial court in a divorce may order one spouse to pay the marital debt of another, or, order one spouse to pay the other spouse an equalizing distribution of cash to even out the division of marital assets.  But, it is a horse of another cooler for a court to order a spouse to undertake a completely new obligation to a third-party.  In Bock v. Dalbey, that is precisely what the Nebraska Appellate Court has ordered.  The wife was not under federal law obligated to the U.S. Treasury for the tax on her husband’s earnings although under state law she was obligated to the marital res for such taxes.   The court could properly divided that marital obligation but I believe exceeds its authority in ordering that the unwilling wife become liable to the U.S. Treasury, a third-party to which she was not during the marriage obligated.  To do so is to create a new debt which goes beyond the state statute instructing the court to divide existing marital liabilities.

Copyright 2011 by Robert S. Steinberg

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