Can New Jersey Family Courts Order Divorce Litigants To Sign Joint Tax Returns?
As a New Jersey divorce attorney, I am well aware that family courts here in New Jersey usually will not compel divorce litigants to sign joint federal and state tax returns. The courts like to avoid this because they do not want to expose the parties’ to unnecessary liability. However, sometimes a court will order divorce litigants to sign joint tax returns when it is the parties’ best interest to do so. That was the case in Bursztyn v. Bursztyn.
In the case, the parties were married in November 1982 and the wife filed for divorce in 2000. Two children were born of the marriage. The wife had her masters in psychology, yet did not work outside of the marital home while married. Instead, she was a housewife that primarily took care of the children. On the other hand, the husband was a radiologist and the sole breadwinner for the family. When the parties had initially met, the husband had a fellowship at New York Hospital/Cornell Medical Center.
In 2000 when the wife filed for a divorce, her husband was working as the medical director at Yonkers Imaging, P.C., a radiology center he founded in 1987. Additionally, from 1992 to 1996 the husband operated another radiology center, Westside M.R.I. in Manhattan. However, the second center did not contribute to a significant portion of the husband’s income. The radiology center in Yonkers operated pursuant to contracts with a management company. Pursuant to the contracts Yonkers Imaging leased its building and equipment from the management company. In return, the management company was responsible for collecting on Yonkers Imaging’s accounts receivables.
As the director, the husband earned a substantial income. However, in the years leading to the divorce the husband’s income had decreased due to a reduction in accounts receivable. The husband believed that his business was down because of general changes in the medical marketplace, particularly the switch to managed-care reimbursements. Additionally, in the years prior to the divorce, the contracts between Yonkers Imaging and the management company became less profitable. The management company decided that the radiology center had to start bearing the costs of insurance policies (life, health, disability, and malpractice), in addition to the cost of employing replacement doctors when the husband was on vacation. The following chart reflected the husband and his practices’ income and revenue respectively from 1993-2000.
Husband's Adjusted Gross Income
Practices' Gross Revenue
In 2001, the husband reported an adjusted gross income of $320,012 and in 2002, $248,905, which was net of the $72,000 in alimony he paid to his ex-wife. Throughout the parties’ marriage, the couple lived well above their means. They sent their sons to expensive private schools and hired drivers to take the children to and from. Also, the parties spent over $150,000 on their two sons’ bar mitzvahs. Furthermore, the parties frequently took elaborate vacations and paid for their children to go to expensive sleep-away camps for the summer. Moreover, the parties had a live-in housekeeper, a kitchen staff, and an outdoor staff to manicure the lawn. Lastly, the parties spent enormous amounts of money on personal items, such as jewelry and cars.
The husband’s income, although decent, was not high enough to pay for his and his ex-wife’s spending habits. The parties did not pay their full income tax amount, took out loans, wrote personal checks on business accounts, utilized 18-24 credit cards, and took distributions from the husband’s profit sharing retirement plan, just to name a few. In the final judgment of divorce, the court stated that the parties could not maintain the standard of living they were used to while married because they had depleted their marital assets in order to pay off their debts and liabilities.
In particular, the court discussed the fact that the parties failed to pay their full annual income tax obligation in order to maintain their quality of life. At the time of the divorce, the parties had only paid their taxes through and including 1998. Yet, for 1999 and 2000 the parties still owed, in principal, $243,000 to the federal government, $33,000 to the State of New York, and $17,900 to the State of New Jersey. Additionally, the parties had not filed their tax returns for 2001. The wife refused to file joint returns for 1999-2001; however, the court ordered her to do so in order to abate the interest and penalties and ultimately resolve all tax issues. The court appointed an expert to testify on its behalf and the wife appealed.
On appeal, the wife argued that the trial court erred in forcing her to file joint tax returns with her ex-husband. However, the Appellate Division affirmed the findings of the lower court. The Court first noted that trial courts in New Jersey have discretionary authority to compel parties in divorce proceedings to file joint tax returns. The New Jersey Appellate Division then laid out five specific reasons why the trial court did not abuse its discretion in compelling the parties to jointly file:
- There was a significant financial benefit to filing together
- There was no evidence that the husband had filed fraudulent returns in the past or that he intended to file fraudulent ones in the future
- The husband was the source of income during the parties' marriage
- he wife had not expressed why she should file separately given the circumstance
- Since the vast majority of marital assets were required to pay marital debts, there was little means by which the court could modify the equitable distribution in order to compensate the husband for the adverse tax consequences of filing separately
Although the Appellate Division stated that generally, trial courts should avoid compelling parties to execute joint tax returns because of potential liability to which parties could be exposed, the court found it beneficial to the parties in Bursztyn. For more information on this issue, please contact my office today.