Joint Tax Refund During Divorce
Very often couples going through a divorce still file a joint tax return. That is because as long as you are still legally married, you have the option to file jointly (you should discuss all tax ramifications with an accountant).
Filing jointly can make financial sense, but it can also lead to a dispute when the refund arrives. In a New Jersey divorce, who earned the income and whose account received the money do not automatically decide who keeps it. What usually matters is when the income was earned and how the refund fits into the overall division of your marital assets.
Can You File a Joint Tax Return During a Divorce?
Generally, yes. For federal tax purposes, your filing status depends on your marital status on December 31. If your divorce is not final by that date, the IRS generally still considers you married for the entire year, even if you live apart or your case has already been filed. If your divorce is final by December 31, you cannot file a joint return for that year. IRS Publication 504 explains these rules in more detail.
Spouses who are still married usually have two main options: married filing jointly or married filing separately. In some cases, a spouse who lived apart from the other spouse during the last six months of the year and supports a qualifying child may be able to file as head of household.
A joint return often produces a lower combined tax bill, but the lower bill is not the only thing to consider. Before you sign, keep these points in mind:
- Both spouses must sign. You are signing a return that reports both spouses’ income, deductions, and credits.
- You are both responsible for the return. The IRS can generally pursue either spouse for tax, interest, and penalties due on a joint return, even after the divorce.
- The choice can be difficult to undo. After the filing deadline, you generally cannot switch from a joint return to separate returns for that year. Couples who file separately can generally change to a joint return within three years of the original due date.
Who Gets a Joint Tax Refund in a New Jersey Divorce?
If you do file a joint tax return and a refund is issued, that refund is subject to equitable distribution just like any other marital asset. One party is not automatically entitled to keep the entire tax refund, even if they were the one that worked and the other spouse did not, as long as the taxed income was earned during the marriage.
Equitable distribution means a fair division, which is not always an equal one. In deciding what is fair, a court considers the factors listed in N.J.S.A. 2A:34-23.1, including each spouse’s contribution to marital property. That includes contributions as a homemaker, so a spouse who stayed home is not excluded simply because the W-2 carried the other spouse’s name.
In practice, many couples handle the refund as one part of a larger settlement. One spouse may keep the money in exchange for a credit elsewhere, or the parties may use it to pay down joint debt.
Why the Divorce Complaint Date Matters
In New Jersey, the date the divorce complaint is filed is generally the cutoff for identifying marital assets. That date can be important because a refund often relates to income earned months before the money arrives. The date the refund is received does not always answer the question. The more useful question is what income and tax payments created it.
| Situation | How It Is Often Treated |
|---|---|
| The refund relates to income earned before the complaint was filed. | Generally subject to equitable distribution, even if the refund arrives after the case begins. |
| The refund relates to income earned after the complaint was filed. | Generally not a marital asset, although the facts of the case and any agreement between the parties still matter. |
| The complaint was filed partway through the tax year. | The refund may need to be allocated between the period before filing and the period after filing. |
| The spouses filed separate returns. | A separate return does not settle the issue on its own. The refund may still be considered if it relates to income earned before the complaint was filed. |
| The overpayment was applied to next year’s estimated taxes. | The credit still has value and should be accounted for, even though no money was deposited. |
What If Your Spouse Takes the Entire Tax Refund?
I have seen many cases where one spouse takes the entire tax refund just as divorce proceedings are getting started. When that happens, an application can be made for the tax refund to be turned over and held in trust until the case has been resolved. If the money is no longer available, the other spouse usually receives a credit for a portion of the refund toward equitable distribution when it is settled.
New Jersey does not automatically freeze bank accounts when a divorce is filed, so you may need to ask the court for help if the money is at risk. How quickly you act can make a difference, because it is easier to protect funds that are still sitting in an account than to recover funds that have been spent.
If you believe your spouse took the refund, these steps can help:
- Get the return. A copy of the filed return shows the refund amount and the bank account listed for direct deposit, if any.
- Gather account records. Bank statements can show when the money arrived and where it went next.
- Tell your attorney promptly. Your attorney can evaluate whether to ask the court to order the funds preserved or returned, or to account for them later in the case.
- Look at the bigger picture. A refund that is moved or left out of the Case Information Statement can raise broader concerns about hidden assets.
How the money was used can also matter. Using a refund to pay the mortgage or other family expenses may be viewed differently from moving it into a private account or spending it on personal items.
Direct Deposit Makes the Account Number Important
Because the IRS has been phasing out paper refund checks, more refunds are now sent electronically. The account listed on the return matters. Before filing, make sure you know which account will receive the refund. Some banks will not accept a joint refund into an account held by only one spouse, and your accountant can tell you whether splitting the refund between accounts is possible.
What If the IRS Applies the Refund to Your Spouse’s Debt?
A joint refund can be reduced or taken entirely to pay certain past-due debts, such as back taxes, state income tax, past-due child support or spousal support, and federal student loans. This can be especially frustrating when the debt belongs only to your spouse.
If you are not responsible for the debt and part of the refund is yours, you may be able to request your share as an injured spouse by filing IRS Form 8379, Injured Spouse Allocation. The form can be filed with the joint return if you expect the refund to be taken, or after it has happened. Your accountant can review whether it applies and whether a deadline is approaching.
What If You Owe Taxes Instead of Receiving a Refund?
A joint return does not always end with a refund. It can also result in a balance due, or a tax problem may appear years later if the IRS reviews the return. Your divorce agreement can say which spouse will pay, and that may be enforceable between the two of you. However, the agreement does not bind the IRS, which can still seek payment from either spouse on a joint return. If your former spouse does not pay, you may need to pay the IRS and then try to recover the money from your former spouse.
If the tax problem results from your spouse’s errors or unreported income, and you did not know and had no reason to know about it, you may be able to ask for innocent spouse relief using IRS Form 8857. This is different from injured spouse relief. Injured spouse relief helps recover your share of a refund, while innocent spouse relief addresses responsibility for tax on a joint return. If you receive an IRS notice about this type of issue, speak with a tax professional right away. Tax debt can also be addressed as part of dividing debt during divorce.
How to Protect Yourself Before Filing a Joint Return
If you and your spouse are considering a joint return while your divorce is pending, it is best to work out the details before anything is filed:
- Ask your accountant to compare the results of filing jointly and filing separately.
- Review the entire return, including any income or deductions tied to your spouse or a family business.
- Confirm which account will receive the refund, or who will pay any balance due.
- Put your agreement in writing, including how the refund will be divided or held until the case is resolved.
- Keep a complete signed copy of the return and all supporting documents.
- If your spouse handles a business or has complicated finances, ask whether a forensic accountant should review the numbers.
What Your Divorce Settlement Should Say About Taxes
Tax issues can continue after the divorce is final. A clear property settlement agreement can help prevent a later dispute by addressing:
- Which tax years the agreement covers and which returns still need to be filed
- How refunds and overpayment credits will be divided, including any received after the divorce
- Who will pay any balance due, and who will pay if the IRS later assesses more tax
- Whether one spouse will indemnify the other for tax problems caused by that spouse’s income or errors
- How the parties will share documents and cooperate if there is an audit or amended return
If a former spouse does not follow these terms, the agreement may be enforced through the court.
Joint Tax Refund and Divorce FAQs
Is a joint tax refund marital property in New Jersey?
Generally, a refund tied to income earned during the marriage and before the divorce complaint was filed is subject to equitable distribution. The answer can change depending on the tax year and when the complaint was filed.
Can my spouse keep the whole refund because they earned the income?
Not automatically. Income earned during the marriage does not belong to one spouse just because that spouse earned it. The refund is considered with the other marital assets and debts.
Does the refund have to be split 50/50?
No. New Jersey requires an equitable division, which may or may not be equal. Spouses can also agree to a different arrangement as part of their settlement.
Can we file jointly if we are separated but not divorced?
Usually, yes. If you are still legally married on December 31, a joint return is generally available for that tax year. Your accountant can confirm which filing status makes sense for you.
What if my spouse will not sign a joint return?
A joint return requires both spouses’ signatures. If your spouse will not sign, speak with your accountant and attorney before the filing deadline about filing separately or requesting an extension.
Speak With a New Jersey Divorce Attorney About Your Tax Refund
Besides discussing your taxes with an accountant, it is important to speak with an attorney if you are about to go through a divorce and believe that you are owed an income tax refund.
Bronzino Law Firm, LLC represents clients throughout Monmouth County and Ocean County from our office in Manasquan, NJ. To discuss your situation with Peter J. Bronzino, Esq., call (732) 812-3102 or contact us to schedule a free, confidential consultation.
