Joint Tax Refund: Is It Exempt As Entireties Asset?

I would expect that tax refunds payable to husband and wife who filed taxes jointly would be considered tenants by entireties property exempt from the creditors of either spouse. A bankruptcy trustee challenged the exemption of a joint tax refund in a recent Orlando, Florida bankruptcy case. The trustee argued that either spouse, acting alone, can unilaterally revoke the couple’s election to file a joint taxt return (and therefore receive a joint refund) in a number of different ways even after the joint return has been filed. The trustee argued that the ability to unilaterally revoke a prior decision to file a joint tax return prevents married couples who file joint returns from owning tax refunds as tenants by entireties.

The bankruptcy court overruled the trustee exemption. The judge decided that just because future circumstances can cancel tenancy by entireties does not mean that entireties cannot exist during the time that ownership meets all the entireties requirements. Florida law, the judge said, does not prevent tenancy by the entireties, just because one of the spouses sometime in the future may decease, divorce, or take any other action to cancel the entireties. The court upheld tenancy by entireties exemption for the debtor’s joint tax refund. In re: Sabina Freeman 07-bk-05516

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida.