Are Joint Tax Refunds Protected As Entireties Property When One Taxpayer Files Bankruptcy?

Florida law presumes that personal property owned jointly by married couples is tenants by the entireties property which is exempt if one spouse files bankruptcy individually. A new client this past week asked me if a tax return he expects to receive would be protected if he filed bankuptcy. The prospective debtor files joint tax returns. The debtor make substantially more money than his spouse. Therefore, most of the tax refund relates to the debtor’s income. The question was whether the joint tax refund would be entireties property if the money mostly is attributable to the debtor’s earnings.

Many years ago bankruptcy courts did not protect joint tax refunds as entireties property. Following the Florida Supreme Court decision in Beal Bank in 2001, which decision expanded tenants by entireties, more than one bankruptcy court has held that joint tax refunds may be treated as entireties property regardless of the spouses’ relative income. The courts have considered whether the spouses throughout their marriage always filed joint tax returns and whether the refund check was made payable to both spouses. One court reasoned that when spouses file joint returns both spouses are liable jointly and severally for tax liability regardless of their relative earnings, and therefore, the spouses should share protection of the tax refund when either spouse files bankruptcy.