Dragging out the divorce to get at tax refund

[aviator41]

What is the name of your state (only U.S. law)? OKLAHOMA

MY STB ex and I have been living apart since May 11, 2009. there is currently a temorary injunction in place and the court date to hear the injunction has been scheduled 4 times - each time her attorney continues it. It is now scheduled "subject to call" - meaning no date set.

I recently figured out what she's doing, she wants at my tax refund. I am estimating a very large refund due to mortgage interest and a small business I had before the marriage. (mortgage in my name only, house title in both). She will be getting a very small refund.

Would the courts award her half of my refund, even though it's based on my income, my business and my mortgage? Just about the entire refund will be going towards paying off marital debt. (not all, bust most)

My second question is how can I finally get closure on this divorce without her continuing it again? do I need to just file my own divorce paperwork or would I be better served to file seperation papers, and will filing those papers before I file taxes help me retain my refund?

 

[mistoffolees]

What is the name of your state (only U.S. law)? OKLAHOMA

MY STB ex and I have been living apart since May 11, 2009. there is currently a temorary injunction in place and the court date to hear the injunction has been scheduled 4 times - each time her attorney continues it. It is now scheduled "subject to call" - meaning no date set.

I recently figured out what she's doing, she wants at my tax refund. I am estimating a very large refund due to mortgage interest and a small business I had before the marriage. (mortgage in my name only, house title in both). She will be getting a very small refund.

Would the courts award her half of my refund, even though it's based on my income, my business and my mortgage? Just about the entire refund will be going towards paying off marital debt. (not all, bust most)

My second question is how can I finally get closure on this divorce without her continuing it again? do I need to just file my own divorce paperwork or would I be better served to file seperation papers, and will filing those papers before I file taxes help me retain my refund?

File your taxes as married, filing separate. If you do so and receive the refund, then it will be up to her to prove that she's entitled to some of it. If it's due to income and a pre-marital business, she would not be entitled to that portion.

As for the portion of the return coming from mortgage interest, it will depend. Who was given possession of the house in the preliminary hearing? Who is paying the mortgage? Was the house yours before the marriage or was it purchased during the marriage?

If you are the one paying the mortgage and the court gave you temporary possession of the house, she can probably not claim any benefit from the mortgage interest. There are some fine details, though, so see a tax accountant.

As far as bringing the divorce to closure, someone else will have to give you the answer. I know that there's a lot of leeway in our system allowing people to delay, but I know it's also possible to eventually force the issue (although 8 months isn't a ridiculously long time). Of course, if she's only interested in the tax issue, the tax year is over so she no longer needs to delay, so maybe it will go smoothly. Your action to speed things up depends on who filed for divorce - which one of you filed?

 

[aviator41]

I will try to answer your questions:


There has been no preliminary hearing on this case yet. We are operating under the default stay that it put in place when initial paperwork is filed. However, any paperwork I have been served has been at this residence, all of her paperwork has been served at her current residence. She really has nothing left tying her to the house. All the bills are in my name and always have been etc...

The entire refund would be based on my pay from a conventional job I receive a W-2 from, the mortgage interest from a mortgage in my name only, and a business established before we met.

I am living in the home. She established her own residence in May. She has not lived here since then. I am paying the mortgage (I always have, though while we were married it was paid through a joint account). The house was purchased during the marriage. The mortgage is in my name only, we are both on the title of the home.

She is the one the filed for divorce. Her attorney has continued it more times than I can count. I would love to be able to file something like a "motion to compel" to get things going, but so far I've not been able to find anything like that.

 

[Ohiogal]

File your taxes as married, filing separate. If you do so and receive the refund, then it will be up to her to prove that she's entitled to some of it. If it's due to income and a pre-marital business, she would not be entitled to that portion.

WRONG. It is due to income and marital assets -- at least partially. Is there a prenup precluding ANYTHING from being considered partially marital? Income is a marital asset if earned during the marriage. if the mortgage is paid with income, guess what? If the business brings in marital income, guess what? Therefore the REFUND is marital.

As for the portion of the return coming from mortgage interest, it will depend. Who was given possession of the house in the preliminary hearing? Who is paying the mortgage? Was the house yours before the marriage or was it purchased during the marriage?

Wrong. they are still married. hence it is marital. it was earned last year during the marriage.

If you are the one paying the mortgage and the court gave you temporary possession of the house, she can probably not claim any benefit from the mortgage interest. There are some fine details, though, so see a tax accountant.

This is a tax REFUND -- counts as marital property.

As far as bringing the divorce to closure, someone else will have to give you the answer. I know that there's a lot of leeway in our system allowing people to delay, but I know it's also possible to eventually force the issue (although 8 months isn't a ridiculously long time). Of course, if she's only interested in the tax issue, the tax year is over so she no longer needs to delay, so maybe it will go smoothly. Your action to speed things up depends on who filed for divorce - which one of you filed?

The tax refund is based on marital property. He has to prove WHY it should not be considered marital. I will double check so this doesn't turn into a because I said so. But I am 99% sure of what I am saying.

 

[Ohiogal]

A couple cases for the OP to look at:
2009-OK-0807.260
IN RE MARRIAGE OF McQUAY v. McQUAY
2009 OK CIV APP 59

Husband's concrete business is a sole proprietorship. Wife called the parties' CPA to testify at the October 4, 2007 trial with respect to the value of the business. He had prepared their personal and business tax returns through 2004. He had been an accountant since 1968 and a CPA since 1988.(fn1) The CPA used Revenue Ruling 59-60 as a basis for the business evaluation, which he testified was how the IRS evaluates closely-held businesses (as well as others). He used the tax returns to review gross proceeds and net income of the concrete business. He stated that he also used guidelines from the American Institute Journal of Accountancy. According to the CPA, Revenue Ruling 59-60 states that because of so many variables in a closely-held business, it is right to use goodwill if certain circumstances apply.

In the above case the HUSBAND'S SOLE PROPRIETORSHIP was considered a marital asset.

 

[Ohiogal]

In 197 P.3d 524
IN RE MARRIAGE OF RITCHIE
2008 OK CIV APP 106
the parties were ordered to pay for the QDRO out of their tax return:

The issue of the retirement order shall be submitted on (Husband's) motion to settle. [The] Order or other appropriate Orders shall be prepared by the office of Ken Klingenberg and the fees will be paid from the parties(') 2005 tax return. That survivor benefits shall be included in the Qualified Domestic Relations Order and other appropriate Orders.

The date of filing for divorce was 12/15/95. The tax return for the year since they were married was marital. They were divorced in 2007.

Nothing was said about the 2006 tax return. I am still looking.

ETA: But they are still married. They jointly own the home. A portion of the business (equity that accrued) can be considered marital. It is also possible that SHE can get a court order requiring them to file jointly AND split the refund.

 

[mistoffolees]

WRONG. It is due to income and marital assets -- at least partially. Is there a prenup precluding ANYTHING from being considered partially marital? Income is a marital asset if earned during the marriage. if the mortgage is paid with income, guess what? If the business brings in marital income, guess what? Therefore the REFUND is marital.

Wrong. they are still married. hence it is marital. it was earned last year during the marriage.

This is a tax REFUND -- counts as marital property.

The tax refund is based on marital property. He has to prove WHY it should not be considered marital. I will double check so this doesn't turn into a because I said so. But I am 99% sure of what I am saying.

I think this situation is a bit different. The case you cited has to do with VALUATION of a business, not how its income is allocated.

In this case, we're talking about income rather than asset value. They filed for divorce early in the year. Therefore, OP's income from after the filing is no longer marital so the tax from after the filing would also not be marital.

He had the business before the marriage. If he didn't mingle the business with marital assets, it may well be separate property.

As for mortgage interest, since he made the mortgage payments after filing for divorce, he is the only one who can deduct them. Even if the spouse wanted to, IRS rules state that only the person who pays the interest can deduct it.

HOWEVER (and this is a big one), my original advice was wrong in one respect: any of the salary income, mortgage deduction, and business income (or loss) from before they date they filed for divorce would be marital. Sorting that all out will be time consuming and expensive - it might be expensive enough to make it worthwhile to just file jointly and let her have half.

 

[Ohiogal]

They have been separated since May. When was the DIVORCE petition filed though. Before or after July 1?

It is possible that the refund will be considered marital. I will change that to possible.

 

[LdiJ]

I have no idea what kind of income the OP has, but I do know that his only choices for filing taxes are married filing separately, and married filing jointly.

It honestly may not be in his best interest to file separately. He should run the numbers both ways before deciding how to proceed with his ex.

He can negotiate from a better position of strenght that way.

 

[IrishLady47]

I have no idea what kind of income the OP has, but I do know that his only choices for filing taxes are married filing separately, and married filing jointly.

It honestly may not be in his best interest to file separately. He should run the numbers both ways before deciding how to proceed with his ex.

He can negotiate from a better position of strenght that way.

Agree, but he'll need some cooperation from STBX (her income) to figure it out. But it could well be that filing joint & splitting 50/50 may net him more than filing separately.

 

[aviator41]

My income is like this:

62,500 from a standard W-2 bearing job
12,225 from my personal business.

Her income is this:

23,880 from W-2 bearing job
6,000 from child support from prev. marriage

I'm less concerned about maximizing the refund and more concerned about keeping the part that is from my income. As you can see, I brought home a considerably larger sum every month compared to her. Of course, I have also been paying ALL of the marital debt on my own since we split (even including her car payment and car insurance), so I'm pretty much paycheck to paycheck right now. It would be great to be able to use the refund to pay off some marital debt so I have some breathing room. She in no way assists with my personal business. It's me and an associate that own it.

And before you ask, yes, I've asked her for help in paying the marital debt. Her response is "you want to keep your credit clean, YOU pay it. I could care less." - real nice huh? The only thing she's contributing is she is still carrying insurance for everyone in the "household" because the injunction prevents her from dropping it. I guess she shot herself in the foot on that one. Health insurance runs $125 per pay period for the entire family. ($250 a month)

The Divorce paperwork was filed mid August

 

[IrishLady47]

CS is not taxable income. Have you run the numbers both ways? I mean, if you will get the same or better in half of a joint return than you would filing separately, why not? Gives you a bargaining chip.

 

[aviator41]

Haven't been able to run the numbers with her income, she won't provide everything thats needed to make the calculation. I know she received a raise mid year (she was out celebrating her raise when she had an affair bringing the divorce on) - but as far as whats being taken out of her check, who knows.

 

[mistoffolees]

Haven't been able to run the numbers with her income, she won't provide everything thats needed to make the calculation. I know she received a raise mid year (she was out celebrating her raise when she had an affair bringing the divorce on) - but as far as whats being taken out of her check, who knows.

Just make a guess as to her income and run the numbers both ways. There's a good chance that it won't matter all that much - in which case you don't want to start a fight over something which will be hard to win (it's not clear that you're entitled to keep it anyway, and even if you do, you probably have to give her at least some fraction - and it will be expensive to calculate the amount). Unless you're talking about a difference of thousands of dollars, it's probably better to just file jointly and split it with her.

 

[LdiJ]

Haven't been able to run the numbers with her income, she won't provide everything thats needed to make the calculation. I know she received a raise mid year (she was out celebrating her raise when she had an affair bringing the divorce on) - but as far as whats being taken out of her check, who knows.

Run the numbers as if neither one of you had any federal or state income tax withholding...allowing for a marginal income increase for her since you believe she got a raise.

That won't tell you how much actual refund you would get, but it will give you a reasonable idea of the difference in tax filing separately vs filing jointly, and should give you an idea whether or not she would be likely to negotiate.

For example, if she gets to claim children and you don't, therefore giving her a refund even with no withholding, she is not likely to negotiate with you at all.

However if she has no refundable credits, and you would pay significantly higher tax, then you may have some room to negotiate...or if together you are entitled so some credits that would not be allowed to parties filing "married filing separately" you may have some room to negotiate.

You might want to see a tax professional to run the numbers, as a tax professional can give you more immediate advice about what the numbers mean.

Quite frankly, you have been separated for more than the last 6 months of the year, and she apparently has children in her custody, which means that she may be entitled to file head of household status, which could give her significant refundable credits, therefore she may not be interesting in negotiating. She may PREFER to file on her own. The devil is in the details.