Joint Tax Refunds May Be Tenants By Entireties Property

Courts have discussed, and disagreed, whether a individual judgment debtors interest in a joint marital federal tax refund is protected tenants by entireties property. The U.S. Supreme Court held that the IRS may garnish a joint marital tax refund to collect taxes owed by either spouse individually. Some bankruptcy courts in Florida, citing the U.S. Supreme Court, found that an individual married judgment debtor may not exempt a prospective federal tax refund payable to the debtor and spouse where the couple filed taxes jointly.

A Florida state court recently (2018) considered this issue ( 2008 WL 3403478). The input of a Florida appellate court is important inasmuch as not only lower state courts, but also federal bankruptcy courts, look to Florida appellate law to decide debtor exemptions. The Florida court found that federal tax refunds payable to a husband and wife constitute entireties property that cannot be garnished by the civil creditors of either spouse when the couple filed a joint return. The court stated that rules applicable to IRS collection of entireties property announced by the U.S. Supreme Court does not apply to civil creditors under applicable Florida  law. The court recognized that the tax refund is entireties property despite fact that refunds were related to the husband’s separate economic activity.

About the Author

Gideon Alper specializes in asset protection planning for individuals and their families.

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