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  1. #1
    Join Date
    Apr 2012

    Default What Portion of a Joint Tax Refund Can Be Claimed by a Bankrupt Spouse's Creditors

    My question involves bankruptcy in the state of: Arizona

    Short version, am I entitled to half the tax refund?

    Long version:
    We were married April 16, 2011. After finding out my husband was being sued, he filed for chapter 7 in August 2011. I did not file, all debts were separate and before the marriage. BK was discharged in November (I think?). In the interest of calculating the possible refund due, I made approximately 50,000 last year, he made approximately 10,000. Our total state and federal refund was $3737. I have one son from a previous relationship claimed as a child tax credit. We both had education credits.

    Because my husband did not make enough for child support last year, he has arrearages. They are more than the tax refund. I had assumed that the IRS would seize our joint refund and give it to back child support. They did not because he had filed bk. Not knowing this would happen, I had filed injured spouse and given my bank information for deposit. The IRS deposited the entire amount of the refund in my account. I immediately contacted the lawyer who handled his bk. They said I was entitled to half so I could either mail the trustee a check for half and be done or mail a check for the entire amount and expect my portion back in 10 days. They said the Trustee would have to send his half to the back child support.

    I mailed half with a letter explaining the situation. I got a letter from the Trustee saying that I should have turned over all of it. I was not owed any of it because it is community property and now belongs to the estate. She did say that it was prorated so I could send in a check for the prorated amount and keep the rest. This was approximately $500.

    I called the lawyer again and she says the Trustee is wrong, they owe me money. That this was taxable income before the marriage.

    Before I call the Trustee and tell her she is wrong, does anyone have any advice, law quotes, anything that will help my case without bringing up a dispute in court? It's not really worth it to pay the lawyer $1000 when all the Trustee wants is $500. I guess I'd just pay it, but the principal of the matter irks me.

    I have several arguments in mind, first being the IRS says AZ injured spouse gets 50%. Second is that I was the breadwinner and entitled to my portion of refund as explained in several cases I found, among them are some of these: Last was that the money would just be going to back child support because it takes presidence and I am not ordered to pay his child support therefore they can only take the 50%. Any of that make sense?

  2. #2
    Join Date
    Sep 2011

    Default Re: What Portion of a Joint Tax Refund Can Be Claimed by a Bankrupt Spouse's Creditor

    Those of us who ultimately suffer the price increases, to pay for people who declare bankruptcy, have little sympathy for you marrying this individual. You had a choice of being subjected to his problems.

  3. #3
    Join Date
    Sep 2005
    Behind a Desk

    Default Re: What Portion of a Joint Tax Refund Can Be Claimed by a Bankrupt Spouse's Creditor

    By "injured spouse", I assume you mean innocent spouse? The IRS rules, though, aren't relevant to the bankruptcy action - their rules relate to when and how they will pursue a spouse's refund or assets to satisfy the other spouse's obligations.

    A bankruptcy court in the ninth circuit addressed a similar case under Idaho law, coming to the conclusion asserted by the trustee in your case. In re Martell, 349 BR 233 (2005). I haven't come across a clear indication of Arizona's laws relating to the treatment of a joint tax refund against the claims of one spouse's creditors, but perhaps that's something your lawyer can help you with.

  4. #4
    Join Date
    Apr 2012

    Default Re: What Portion of a Joint Tax Refund Can Be Claimed by a Bankrupt Spouse's Creditor

    I believe my lawyer's argument to this is that I brought property into the marriage that was not able to be liquidated because I brought it into the marriage and we hadn't yet acquired property during the marriage. Also, because we were married in April of the same year as filing bankruptcy and taxes, any earnings prior to that date are my property, therefore not subject to being turned over. Some of what I read in the case cited seems to agree with this. The case cited is a little different as the filing was done the year after the marriage.

    I also can't seem to find anything regarding tax refunds, community property, and spouse in any searches of AZ cases. But I am knew to all of this so maybe I am doing it wrong.

    I had used the term "injured spouse" instead of innocent spouse because the forms the IRS has you fill out are Injured Spouse. They consider me the injured spouse because my money gets taken therefore rendering me injured I guess.

    Thanks for the response!

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