FORMER HUSBAND COULD NOT ESCAPE OBLIGATION TO PAY FEDERAL INCOME TAX DEBT UNDER A STATE COURT FINAL JUDGMENT BECAUSE FORMER SPOUSE SUBSEQUENTLY WAS DENIED INNOCENT SPOUSE RELIEF BY IRS

In Settonni v. Settonni, the Ohio Court of Appeals for the Eighth District, Cayahogo County (Case No. 97784, Released July 5, 2012), upheld a lower court ruling that denied, without an evidentiary hearing, the former husband’s timely filed motion to set aside the final judgment. 

The husband, among other fruitless arguments, argued that the lower court should have set aside the final judgment because it was “no longer equitable that the judgment should have prospective application.” (Ohio Civ. R. 60(B) (4)).

The parties had represented themselves pro se in the trial court.

The marital settlement agreement (MSA) incorporated into the final judgment had provided as follows:

SPOUSAL SUPPORT
Husband shall pay to Wife the sum of $500 per month as and for spousal support for a period of two (2) years commencing June 30, 2011.  The Court retains jurisdiction to modify spousal support.

DEBTS
Husband shall assume payment of …any tax liability accrued during the marriage.  He herby indemnifies and holds the Wife harmless from any and all expense and liabilities arising from said debts.

The final judgment was entered on December 14, 2010 and incorporated the MSA but extended the support payments to 48 months.  The amount of the tax liability owed on joint returns was $172,000.

The husband argued not that subsequent events made the final judgment inequitable going forward but that the final judgment was inequitable from the outset based on newly discovered evidence.  The Appellate Court stated that one seeking relief under Civ. R. 60(B) (4) must show that he or she is subjected to unforeseen circumstances.

The former husband predicated his motion in part on the assertion that at the time of trial, he was unaware that the former wife had been found by IRS to be responsible for $44,556 of the $172,000 liability.  The court found, however, the former wife had filed her innocent spouse request for relief prior the final judgment and that the IRS issued its notice of intent to deny former wife’s request innocent spouse relief about 8 months prior to final judgment. The court found that the former husband could have uncovered these facts with due diligence.  Thus, the circumstances were not unforeseen and former husband was not entitled to relief under the rule.

Comment
This case is another example of what can happen when tax matters are not adequately addressed in a MSA.  The provision drafted by the pro se parties was woefully inadequate.   They could have avoided misunderstandings by including a comprehensive tax clause that not only provides for indemnification but for a process to deal with IRS notices, appeals and potential innocent spouse claims.

 Copyright 2012 by Robert S. Steinberg, Esquire
All rights reserved

This entry was posted in DIVORCE, INNOCENT SPOUSE, TAX, TAX INDEMNIFICATION CLAUSE and tagged , , . Bookmark the permalink.

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