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Scriveners Beware: The General Rule That An Income Tax Refund On A Joint Return Gets Evenly Split Does Not Apply Unless The Terms Of The Divorce Settlement Expressly Preserve That Right.

The general rule in a New York divorce case is that each spouse has a right to 50% of the marital portion of an income tax refund, because such portion of the income tax refund constitutes marital property.  Cohen v. Cohen, 132 A.D.3d 627;  Hymowitz v. Hymowitz, 119 A.D.3d 736.

However, in the New York divorce case  Frances v. Frances, 2016 WL 3533565, which was decided by the Appellate Division, Second Department on June 29, 2016,  the wife was entitled to keep  100 % of a refund on a joint income tax return for herself.  In the Frances case, the spouses entered into a stipulation of settlement “in full and complete satisfaction of all claims each [party] may have against the other under any law.”  It provided that, except with respect to the real, personal, and mixed property specifically referred to in the stipulation, the parties had divided their respective property to their mutual satisfaction, be it “marital property” or “separate property.”  The parties further intended the stipulation “to effectuate a full property settlement between them,” and each party waived any rights to a distributive award “with respect to any property acquired by the other or acquired jointly either before or during the marriage, or by either individually after the effective date of [the stipulation] and each agree[d] never to seek through judicial proceedings or otherwise … a distributive award or equitable distribution with respect to any property acquired by the other or acquired jointly either before or during the marriage.”

In the stipulation, the parties agreed that the wife would prepare the parties’ 2009 joint tax return. However, the stipulation was silent as to how any refund from the 2009 joint tax return would be distributed.    The Appellate Court noted that the husband would ordinarily have had the right to 50% of the marital portion of the 2009 tax refund, as such portion of the refund would constitute marital property.  But because the stipulation did not specifically provide for the distribution of any refund in connection with the 2009 joint tax return, the husband was held to have waived any right to the distribution of such tax refund in the stipulation.  

The Court reminded the parties that a stipulation of settlement is a contract subject to principles of contract construction and interpretation.  The court should interpret the contract in accordance with its plain and ordinary meaning, and not write into the contract conditions the parties did not insert or, under the guise of construction, add or excise terms, or construe the language in such a way as would distort the apparent meaning.  As an aside, the court’s opinion does not state whether the IRS income tax refund was “e deposited” into the wife’s bank account or if the wife simply signed the husband’s name on the income tax refund check, which refund check presumably would have been made payable to both the husband and wife who signed the joint income tax return. 


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