In Butler v Simmons-Butler, the Michigan Court of Appeals considered the issue whether a trial court has the authority to order a party to sign amended joint federal tax returns for prior years. The defendant appealed that order arguing that the trial court lacked the authority to order her to file amended joint returns, and arguing that she should not have been compelled to sign joint returns under penalty of perjury, as in doing so she would be affirming that the facts plaintiff states on the returns were true.
The trial court entered an order amending its divorce judgment, requiring the parties to file amended joint tax returns for tax years 2011 and 2012, stating, in pertinent part:
"[T]he parties shall file amended joint tax returns for the 2011 and 2012 tax year[s], divide any tax refunds equally, and be equally responsible for any tax deficiencies for [those] years. In the event either or both parties received a tax refund(s) as a result of filing separately, the party who received that refund shall be responsible for re-paying that refund from his or her one-half share of the total tax refund, if any, to which the parties would have otherwise have been entitled to had they filed jointly. In the event a refund a party received as a result of filing separately exceeds that party’s one-half share of the total joint refund, that party shall pay the other party the difference between the other party’s half of the total joint refund (to which the party would have been entitled had they filed jointly) and the refund that was actually received from filing an amended joint tax return. In the event either or both parties incurred and/or paid an income tax deficiency as a result of filing separately, then he or she shall first be reimbursed that deficiency from any joint tax refund(s) before they are divided. The Defendant shall cooperate in the filing and signing of the amended returns for 2011 and 2012."
The COA noted that “Michigan law grants the trial court in a divorce case broad discretion to do equity regarding the disposition of property,” so long as it conforms with Sparks. * * * Indeed, the court’s guiding principle in distributing property upon divorce is—within the confines of statutory and case law—to reach the broad goal of “a fair and equitable division in light of all the circumstances.”
In the COA, the parties cited no Michigan law—and the COA found none—that addresses whether a trial court can order a party to sign and file an amended joint tax return for a tax year occurring during the marriage. The COA noted the potential risk involved to a spouse who signs a joint return, such as joint and several liability on any tax deficiencies and other liabilities. Noting that the “innocent spouse rule” exists is to protect one spouse from the overreaching or dishonesty of the other.
The COA recommended that an order directing a reluctant spouse and protecting him or her from exposure on any tax deficiencies resulting from the other spouse’s information, should order that the reluctant spouse be indemnified and held harmless by the other spouse.
The COA did not see this as a broad power to be exercised lightly, but saw it as a last result in certain cases. The court listed the general type of cases for which such an unusual Order might issue, seeing this limited to cases
(1) where the parties do not have sufficient assets available for the court to shift in order to make up the difference in tax liability,
(2) where there is no history of tax problems with the other spouse,
(3) where the parties have a history of filing joint tax returns during the course of the marriage,and
(4) the parties either agree, or the court orders, that the reluctant spouse be indemnified and held harmless by the other spouse for any tax liability.
Butler v Simmons-Butler was remanded with instructions to the trial court to reconsider its decision ordering defendant to sign amended joint tax returns in light of the factors listed above.
You may read the Court/s Opinion here (For Publication) Download Butler_v_Simmons_Butler