Tax Refund Sharing During Divorce

Some married couples receive big tax refunds from the Internal Revenue Service every year. When you separate, you should take action to protect your right to your fair share.

First, tell your lawyer if you’ve moved out but your “ex” is still living in the family home. Remember that refund checks for joint tax filers are made out to both people. If you think your “ex” might forge your signature and use the money, you can file a divorce suit to prevent that. Courts can “restrain” spouses and ex-spouses from spending a tax refund that is owned by both of them.

If you receive the check, don’t make the mistake of depositing it without your “ex”’s permission. Forging his or her signature can get you in trouble. Talk to a lawyer if you need cash right away. Your lawyer might be able to get the other side to agree to your getting all or part of the refund. In some cases, courts can order an advance payment from community assets, including the refund.

If your “ex” has already received and spent the tax refund, you may still be entitled to get your share back. Whether you can depends in part on when you filed your divorce petition. The filing of a divorce petition ends a couple’s rights to co-manage their community property. After the divorce filing, each person must explain to the other what happened to jointly owned money in his or her possession. Each has a duty to manage money and property in a way that benefits both.

Even if one of you has already filed a petition for divorce, it’s probably okay to use a tax refund to pay the mortgage on your home or to buy your children school clothes and shoes. It’s not okay to go to the casino and gamble it away. It’s not okay to use it to put a deposit on a new apartment that you will not be sharing with your “ex”. The person who doesn’t benefit from the gambling and the new place will have a claim against the person who spent the money. Whether or not there is a divorce petition, before you spend the refund, you should talk to a lawyer.

The bad news about an “ex” spending a big tax refund before you can get your share is that you may never get your share. The legal cost to fight about it may be more than its value. Your “ex” may have no property or income that he or she can use to pay you back. The good news is that if you and your “ex” have property or income, you can collect what you’re owed out of the other person’s share.

Can you use a refund to hire a lawyer? That depends. If you and your spouse receive the refund before either of you files for divorce, as a co-manager of community property, you can spend it on a lawyer. While you are a co-manager, you have the right to spend community money to pay community debt.

If the tax refund comes in after the divorce petition is filed, you may or may not be able to use it to pay your divorce lawyer. Reasonable and customary legal fees in divorce cases are community debts. Community property can be used to pay community debts. But there are other things to consider. Did your “ex” give you permission to endorse his or her name on the check? Did he or she give you permission to spend it and if so on what? Is there a “restraining order” signed by the Judge in effect? Does that order forbid you from spending community money?

To be safe, if you thinking about divorce and expect to receive a tax refund, speak with a divorce lawyer about your choices. Don’t be penny wise and pound foolish.