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joint tax refund ownership

Midwest Athletic Club Garfield Park Chicago Illinois

Midwest Athletic Club Garfield Park Chicago Illinois

joint tax refund ownership

Joint Tax Refunds are not presumably owned equally by married couples.  Instead they are owned by the spouse that earned the income that allowed for the refund to exist.  In this case, the debtor was the spouse who earned all of the income for the family.  Therefore, he was the sole owner of the refund.  Therefore, all of the refund is owned by his bankruptcy estate.  In this case exemptions did not exist for this tax refund.  Therefore the debtor had to turn over all of his tax refund to the trustee in a turnover order.

The case does specifically say this, but is can be implied that in fact a tax refund resulting from the filing of a joint tax return is owned in proportion to the income of each spouse to the total income of the family.  Another better way to look at this is that the producer of the income that resulted in the credit that is a tax refund is the one who owns that refund.

For most debtors who have relatively equal income, the old rules that the refund is owned 1/2 by each spouse will work well.  But under this case, where either one spouse earns all of the income or make substantially more, that spouse will own all or most of the refund.  This is very important where only one spouse of a married couple files bankruptcy. In the case where the debtor did not make any of the income on the tax return that resulted in the refund, he or she is not the owner of that refund.

Example:

Debtor and her husband file a joint tax return showing $100,000 in income.  They receive a refund of $6000.00.  Joint Tax Return is filed April 15, 2012.  Refund is received May 15, 2012.  Debtor Files her bankruptcy on March 15, 2012.  In this case, the Debtor and her husband have received a tax refund after the bankruptcy was file.  This refund is not the property of the estate as it was not in existence on or before the date of filing.

 

Example:

Debtor and her husband file a joint tax return showing $100,000 in income.  They receive a refund of $6000.00.  Joint Tax Return is filed April 15, 2012.  Refund is received May 15, 2012.  Debtor files her Chapter 7 Bankruptcy on May 16, 2012.  The refund has been received but not spent on the date of filing.    In this case, Debtor and her husband are in possession of $6000.00 of non-exempt tax refund on the date of her bankruptcy filing on May 16, 2012.  However, the refund is not owned by the debtor because she did not earn any of the income that was listed on the Joint Tax Return.  Therefore, in her bankruptcy petition, she will list the $6000.00 tax refund but will list herself as a 0% owner and the bankruptcy estate will have no ownership over this interest.  The tax refund will be kept in its entirety by its owner, the husband spouse of the debtor.

Example used with conflicting cases in the Central District and Northern District (the often quoted rule by trustees)

Debtor and her husband file a joint tax return showing $100,000 in income.  They receive a refund of $6000.00.  Joint Tax Return is filed April 15, 2012.  Refund is received May 15, 2012.  Debtor files her Chapter 7 Bankruptcy on May 16, 2012.  The refund has been received but not spent on the date of filing.    In this case, Debtor and her husband are in possession of $6000.00 of non-exempt tax refund on the date of her bankruptcy filing on May 16, 2012.  The refund is considered owned 1/2 by each spouse.  Therefore, in her bankruptcy petition, she will list the $6000.00 tax refund and will list herself as a 50% owner and the bankruptcy estate will have 50% ownership over this interest.  50% of the  The tax refund will be turned over to the trustee.

To read the actual case giving rise to this conclusions, please see:

In Re Ronald W. Ruhl, Debtor

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