The Court of Appeals in Leftwich v. Leftwich, considered and incorporated parties’ tax liabilities in distribution of marital assets and during the divorce proceedings.

Specifically, the trial court had issued a conditional order in the distribution of martial assets phase in effect conditioning receipt of certain martial property to the wife only after she had signed two years of tax returns jointly with her husband in order to reap the tax benefits of joint filing.  Essentially requiring wife to file joint amended tax returns for two previous years.

The Court of Appeals ruled that the order although conditional to be coercive, against Internal Revenue Services’ filing requirements, and rather unreasonable and unnecessary.

The conditional order in short was deeded erroneous as it exceeded both the mandate of the Internal Revenue Code governing joint returns as well as the trial court’s equitable powers.

Generally, tax obligations and liabilities are an omnipresent concern and a relevant factor for consideration in dividing property upon divorce.  Thus, it is appropriate for the trial court to reflect upon each spouse’s income tax liabilities, and to evaluate and consider the relative tax positions of the parties.   Clearly a joint filing would have conferred added financial benefits to the parties here.

However, the propriety of considering tax matters in divorce proceedings in no way serve as a license for the trial court to compel a party to execute a joint return.  The trial court may not via order override the federally granted right to choose to file individually or as a married couple.

The relevant portion of the IRS code states: a husband and wife may make a single return jointly of income taxes.  That is, as a general rule married couples may file a joint return.  However, the benefit of filing a joint return does not dispense with the complete discretion and ability to file a separate individual return.

The trial court’s ordering a spouse to cooperate in filing a joint return would nullify the right of election conferred upon married taxpayers by the Internal Revenue Code to file individually if deemed appropriated.

The Court of Appeals significantly expounded on this issue: the merger of law and equity in our courts does not erode the venerable principle that an adequate remedy at law provides a preferable substitute to coercive equitable relief.

Here, the trial court had the tools to remedy any perceived tax inequity to the husband by altering the disposition of the marital property to compensate accordingly.

Ordering wife to file amended joint returns, and without considering alternative equitable remedies, in effect, overstepped the wife’s right to manage her own fiscal affairs.

The Court of Appeals also reversed the trial court’s order of distribution of marital property as not equitable, just or reasonable.  The trial court had focused only on the husband’s financial contributions to the acquisition of the marital property, and not the contributions made by the wife or the fact that wife was markedly less capable to allocate assets given the parties’ respective earning capacities.  The court had also not considered in the distribution of assets that no alimony was bestowed on wife.

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