Divorcing spouses can file income tax returns as unmarried individuals prior to dissolution of marriage.
Legally Separated Spouses
* Excerpts From I.R.C. [sections] 7703
Sec. 7703. Determination of marital status. (a) General Rule.
For purposes of part V of subchapter B of chapter 1 and those provisions of this title which refer to this subsection--
(1) the determination of whether an individual is married shall be made as of the close of his taxable year; except that if his spouse dies during his taxable year such determination shall be made as of the time of such death; and
(2) an individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.
Decree of Separate Maintenance Required
Taxpayers, although still legally married (i.e., not yet finally divorced), may file their tax returns as individuals as if unmarried, provided there is a decree, order, or judgment for "separate maintenance" which legally separates the spouses.
The key consideration is that to qualify for filing as an unmarried individual while still married, there must be a decree, order, or judgment of legal separation.(5) In other words, the marital status of the parties must have changed by court order, judgment, or decree. The question as to whether a taxpayer is "legally separated" under the provisions of IRC [sections] 7703(a)(2) is to be determined in accordance with the laws of the state of the parties' domicile.(6) The proper inquiry, the court said in Boyer v. Commissioner, 732 F.2d 191, 194 (D.C. Cir. 1984):
[I]s not whether a state order of separate maintenance affects marriage status under applicable state law; rather the proper inquiry is whether an order of separate maintenance affects marriage status in such a way that it is deemed a legal separation under applicable state law. See Capodanno V. Commissioner, 602 F.2d 64, 67 (3d Cir. 1979); Seaman v. Commissioner, 479 F.2d 336, 338 (9th Cir. 1973) ("since a California interlocutory [divorce] decree does not dissolve the marriage, the spouses are still married for federal tax purposes"). In other words, a party must be legally separated under state law in order to be eligible to file as single for federal income tax purposes.
Even in states that have statutes that provide for proceedings which will legally separate the spouses, a temporary order for support in such action will not qualify.(7)
In Capodanno v. Commissioner, 602 F.2d 64 (3d Cir. 1979), it was held that the wife was not entitled to file as an unmarried individual just because she obtained an award from a New Jersey court for separate maintenance. The Tax Court was affirmed in holding that the parties "were not legally separated under the [New Jersey] separate maintenance decree."(8) The court reasoned: "Whether [a spouse] may file as an unmarried individual depends on whether she is legally separated ... within the meaning of 26 U.S.C. 143(2).(9) This, in turn, depends upon the consequences of a separate maintenance decree under New Jersey law."
The court analyzed New Jersey law and found that the particular provision under which the decree of separate maintenance was obtained did not effect a legal separation. Rather, the court found that the particular decree merely had the effect of "a money judgment determining the financial extent of the husband's duty to support his wife and children, if any."(10) The court further stated:
[A] separate maintenance decree under New Jersey law does not legitimize the living apart of a husband and wife. Separate maintenance is thus different from limited divorce which nullifies the marital obligation of cohabitation. Separate maintenance exists to enforce the husband's obligation of support and favors a resumption of cohabitation ....
A voluntary exclusion from the marital residence (without court order or other intervention) by a spouse does not entitle that spouse to file as an unmarried individual even though the parties remain apart. This was made quite clear in Kellner v. Commissioner, T.C.M. 1971-103, wherein the court ruled: "Actual separation does not satisfy the statute which requires that (1) there must be a legal separation and (2) that such separation must have been accomplished by a `decree of divorce or of separate maintenance.'"
Even if a court, in the divorce action, grants exclusive possession of the marital residence, pendente lite, such an order is not tantamount to "a decree of separate maintenance" as is required by IRC [sections] 7703(a)(2).(11) So, too, an order for temporary support in the divorce proceedings will not qualify.
In Klementowski v. Commissioner, T.C.M. 1986-145, it was held that an order awarding temporary support, custody of the children, and exclusive possession of the marital residence pending the outcome of the final hearing on an action for absolute divorce will not entitle the spouses to file as single individuals. The court inferred that had the wife filed a New York action for a legal separation, a final order on such action would meet the standard of IRC [sections] 7703(a)(2). The court rejected the argument that by granting exclusive possession of the marital residence to one of the spouses, it ordered the parties to live separate and apart, and thereby "so changed the incidents of the marriage as to constitute a legal separation within the meaning of `the Code.'" The court articulated:
A court order granting exclusive possession of the marital residence to the wife, without more, does not meet the provisions of section 143(a)(2) which require (1) a legal separation, (2) which must have been accomplished by a decree of divorce or of separate maintenance. Here, we have a court order which provides for only temporary maintenance pending a trial on the action for divorce and under New York law the court is empowered to grant exclusive possession of the marital property to one of the parties pending a final judgment in the case.... An interlocutory order, such as we have here, granting petitioner's wife exclusive possession of the marital home and providing temporary maintenance, is not the equivalent of a legal separation within the meaning of section 143(a)(2).
In Dunn v. Commissioner, 70 T.C. 361, 367 (1978), the court points out that an action to compel support under a divorce statute is distinctly different from an action for legal separation. It noted that, "A temporary order for support during the pendency of a divorce proceeding is more in the nature of an order for support and like such an order for support the marital status is unaffected."
Where state law provides for one provision of the statute for the divorce proceedings to obtain a final dissolution of the marriage(12) and another provision of the statute provides for separation or separate maintenance,(13) if the order of support was in the divorce proceedings as distinct from the proceedings under the separation or support proceedings (without divorce), there is then no doubt that there can be no return filed as an unmarried person until the divorce is final.
IRS Reg. [sections] 1.143-1 (issued under former IRC [sections] 143, but still valid) provides that parties remain married for federal tax purposes when they live apart unless they are "legally separated under a decree of divorce or separate maintenance." (Emphasis supplied.) Example 1 of the same regulations illustrates that a separation agreement alone(14) will not cause the parties to be treated as not married under [sections] 7703(a):
Example (1). Taxpayer A and his wife both make their returns on a calendar year basis. In July 1954, they enter into a separation agreement and thereafter live apart, but no decree of divorce or separate maintenance is issued until March 1955.... B is considered as married to A (although permanently separated by agreement) on the last day of 1954.
The above rule has been followed by the Tax Court. See James F. Donigan, 68 T.C. 632 (1977).
Householders With Children, Living Apart
IRC [sections] 2(c) provides: "For purposes of this part [tax on individuals] ... an individual shall be treated as not married at the close of the taxable year if such individual is so treated under the provisions of Section 7703(b)."
IRC [sections] 7703(b) provides that, if the following tests can be met as to "Certain Married Individuals Living Apart," such individuals shall not be considered as married.
IRC [sections] 7703(b) reads:
(b) Certain married individuals living apart.
For purposes of those provisions of this title which refer to this subsection if--
(1) an individual who is married (within the meaning of subsection (a)) and who files a separate return maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a child (within the meaning of section 151(c)(3)) with respect to whom such individual is entitled to a deduction for the taxable year under section 151 (or would be so entitled but for paragraph (2) and (4) of section 152(e),(15)
(2) such individual furnishes over one-half of the cost of maintaining such household during the taxable year, and
(3) during the last 6 months of the taxable year, such individual's spouse is not a member of such household, such individual shall not be considered as married.
"A child" is defined in IRC [sections] 151(c)(3) as an individual "who is a son, stepson, daughter, or stepdaughter of the taxpayer." The regulations go a little further. IRS Reg. [sections] 1.151-3(a) defines a child also to include: "adopted son, adopted daughter, ... a child who is a member of an individual's household if the child was placed with the individual by an authorized placement agency for legal adoption pursuant to a formal application filed by the individual with the agency, or ... a foster child ... of the taxpayer."
The household must actually constitute the home of the individual for the taxable year. However, a physical change in the location of the home will not prevent the taxpayer from qualifying. The individual and such dependent will be considered as occupying the household during temporary absences due to special circumstances.(16)
A married person therefore under the above prescribed conditions may file a tax return under the favorable status of a single person as if unmarried and thereby save on income taxes, but the conditions under which they can do so are narrow and strictly defined. If a person who is now a Florida resident has come into the state from a jurisdiction with a judgment or decree of legal separation, they can file as an unmarried person. Likewise, a Florida resident who is separated from their spouse, who maintains as their principal residence a home wherein a child of theirs resides during the last six months of the taxable year, who furnishes more than one-half of the cost of maintaining such household, and is entitled to the dependency exemption may file as an unmarried person.
(1) MELVYN FRUMKES, DIVORCE TAXATION HANDBOOK: A PRACTICAL GUIDE FOR LAWYERS & JUDGES [sections] 10.3 (1995).
(2) A court should not require a spouse to file a joint return because of the potential for both civil and criminal liability. Leftwich v. Leftwich, 442A.2d 139 (D.C.A.App. 1980), Sweeney v. Sweeney, 583 So. 2d 398 (Fla. 1st D.C.A. 1991). There is contrary authority, however. See Theroux v. Boehmler 410 N.W. 2d 354 (Minn. Ct. App. 1987). In Sweeney, the Florida court noted that if one spouse fails to sign a joint return, the trial court "can consider whether there will be tax consequences for either party as a result of filing an individual return which should be taken into consideration when revaluating the entire equitable distribution."
(3) Compare the 1997 brackets for a single taxpayer to that of married, filing separately. Single is the first category below, married, filing separately is under that.
(See chart below)
15% 28% 31% $0-$24,650 $24,650-$59,750 $59,750-$124,650 $0-$20,600 $20,600-$49,800 $49,800-$ 75,875 36% 39.6% $124,650-$271,050 Over $271,050 $ 75,875-$135-525 Over $135,525
Furthermore, there are certain limitations imposed upon married persons filing separately that do not bind those who can file individually as unmarried persons. For example, interest on a note secured by a home mortgage is deductible on an indebtedness for acquisition of a qualified residence up to $1 million or for a home equity indebtedness on a qualified residence up to $100,000 for those who file married, filing jointly or individually as unmarried. For those who are married, filing separately, the indebtedness limitations are respectively $500,000 and $50,000. I.R.C. [sections] 163(h). See FRUMKES, supra note 1, at [sections] 2.4.
(4) There is no legal separation in Florida. But see Legget v. Commissioner, 329 F.2d 509 (2d Cir. 1964), where Judge Friendly, for the court, analyzed Florida law as it then existed and concluded that the then-FLA. STAT. [sections] 65.09, authorizing alimony without divorce was in the nature of enabling a limited divorce and would thus qualify as "a legal separation." Note first that the Legget decision dealt with I.R.C. [sections] 71 (the alimony section of the Code), not I.R.C. [sections] 7703, and second, the holding should not be applicable to an action under the present FLA. STAT. [sections] 61.09, entitled "Alimony and Child Support Unconnected With Dissolution" because notwithstanding the "Note" by the Florida Division of Statutory Revision that the present FLA. STAT. [sections] 61.09 is "Former Section 65.09," the current FLA. STAT. [sections] 61.09 is far different than the former FLA. STAT. [sections] 65.09.
(5) "Generally, courts interpret legal separation strictly when determining what forms of separation orders satisfy Section 7703(a)(3)." Ulven, The Separation Penalty: Problems in Establishing Legal Separation for Filing Status, 45 TAX LAW. 903, 904 (ABA) (spring 1992).
(6) Dunn v. Commissioner, 70 T.C. 361, 366 (1978), aff. without opinion, 601 F.2d 599 (3d Cir. 1979).
(7) Boyer v. Commissioner, 732 F.2d 191 (D.C. Cir. 1984).
(8) The New Jersey statute, N.J.S.A. 2A: 3424, for separate maintenance, provides, in part:
"If a husband, without justifiable cause, shall abandon his wife or separate himself from her and refuse or neglect to maintain and provide for her, the court may order suitable support and maintenance to be paid and provided by the husband for the wife and her children, or any of them, by their marriage, or to be made out of his property and for such time as the nature of the case and circumstances of the parties render suitable and proper."
(9) This is now I.R.C. [sections] 7703(a)(2).
(10) New Jersey does have a statute allowing for a legal separation, i.e., a judgment of divorce from bed and board (limited divorce) pursuant to N.J.S.A. 2A: 34-3, but the separate maintenance action was merely for support and does not change the status of the marriage.
(11) See Hill v. Commissioner, T.C.M. 1983-112, where the court rejected the husband's argument that because he was ordered to vacate the residence that maintained his wife, he was "legally separated," that since he was not "illegally separated, he therefore must have been legally separated." In stating it did not agree, the court went on to articulate that, "While it may be that some individuals would not understand the difference between being `separated' from their spouse and being `legally separated' from their spouse, the law itself is clear that in order to be considered an unmarried individual, a taxpayer must be `legally separated' from his spouse `under a decree of divorce or of separate maintenance.' The mere intervention of a court during the pendency of a divorce proceeding ordering a party to vacate the marital home or to provide alimony and child support is not equivalent to a `legal separation' within the meaning of section 143(a)(2)."
(12) A divorce of a vinculo matrimonii (a final divorce).
(13) Similar to a divorce mensa et thoro (from bed and board).
(14) "If tax consequences of the separation are important to the couple, practitioners should advise their clients of the risk associated with voluntary agreements. Courts have not recognized voluntary separation agreements as creating legal separations." Ulven, supra note 5, at 908.
(15) The Dependency Exemption provision of the Internal Revenue Code.
(16) I.R.S. Reg. [sections] 1.143-1(b)(3).
Melvyn B. Frumkes maintains law offices in Miami and Boca Raton, and restricts his practice to marital and family law. He received an LL.B., with honors, from the University of Florida College of Law. Mr. Frumkes is a former chair of the Family Law Section, a former president of the AAML, associate editor of the Journal of the AAML, and has been a member of the faculty of the National Judicial College in Reno, Nevada, for the past 12 years, where he teaches divorce taxation.
This column is submitted on behalf of the Family Law Section, Martin L. Haines III, chair, and Melinda Penney Gamot and John Morse, editors.