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Filing Joint Tax Returns
I am in the midst of a nasty divorce with my husbandů.

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

The answer to this question would stand on the individual facts of your case. The significant factors are:

  • There are significant financial benefits to filing joint returns.
  • There is no evidence of past fraudulent returns.
  • The tax returns are prepared by an independent expert.
  • The party that seeks to file a joint tax return must execute a hold harmless and indemnification agreement.
  • There is an absence of a principled reason for refusing to file jointly.
  • There is an absence of funds to adequately compensate the adversely affected spouse.

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

The seminal case is Bursztyn v. Burzstyn, 379 N.J. Super. 385 (App. Div. 2005). In the Bursztyn case, the parties lived a very extravagant lifestyle. The parties did not pay all of their taxes and they used this money to live "high on the hog." At the time of their divorce trial, the parties were paid up on their tax obligations up until 1998. However, they still owed substantial back taxes for the years of 1999 to 2000. They did not file tax returns for 1999-2001 as of the date of the trial. At trial, a tax expert testified that the parties would save a significant amount of taxes if they filed joint tax returns for those years. Nonetheless, the wife refused to file any more joint tax returns with her husband. Ultimately, the court ordered the wife to file the joint tax returns. Moreover, the court ordered that the husband had 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 which provides that a court has the authority to compel parties to file joint tax returns. It is important to note that the Bursztyn court recognized that financial exposure of a spouse in filing for joint tax return(s). Therefore, the court required the husband to indemnify the wife for any fraud that related 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 the Bursztyn holding it will be much more difficult for a spouse to avoid filing a joint tax return in the midst of a separation. After this case it will be very difficult for a spouse to allege that her former partner is manipulating the books of a company to avoid the filing of a joint income tax return. A spouse will have a higher burden for not wanting to file a joint tax return, and she must establish a "principled reason" for not filing jointly. The spouse can't just allege that there is a possibility that her spouse can manipulate the books of a company that is owned by one of the parties or by the family. There will have to be some concrete proof presented to the court to prove that one spouse is preparing and filing a fraudulent tax return(s). If one spouse only alleges to the court that her spouse can cook the books, then this will not be sufficient to avoid a court order that compels the filing of joint tax returns. 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 compel it.

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