In a state that allows a couple to hold personal property as tenants by the entireties, a tax refund is not estate property if only one spouse is in bankruptcy, even when all income was earned by the bankrupt spouse, according to Bankruptcy Judge Karen S. Jennemann of Orlando, Fla.
The husband filed a chapter 7 petition. The wife didn’t. The couple filed joint tax returns for two years, giving them refunds totaling some $22,000.
The husband amended his schedules to claim an exemption in all of the tax refunds. The trustee objected, but Judge Jennemann overruled the objection and declared that the refunds were not estate property in an opinion on May 17.
The couple had been married for 20 years before the husband’s bankruptcy. He earned all of the family’s income responsible for the refunds.
In Florida, a married couple may own real and personal property by the entireties. Entireties property belongs to neither spouse individually. Each owns the whole, or the entirety, not a share or a divisible part, Judge Jennemann explained.
Personal property in Florida is presumed to be owned by the entireties, absent a controlling statute or an express agreement establishing ownership other than by the entireties. If the couple had joint creditors, they may foreclose entireties property. If creditors hold claims only against one spouse, creditors in that circumstance “cannot exercise any right over the property,” Judge Jennemann said.
The trustee conceded that the couple had no joint creditors but argued that the refunds were estate property because the debtor’s “wages are the sole source of funds generating the Refunds.”
Judge Jennemann had effectively nixed the trustee’s contention 14 years ago in Dillworth v. Hinton (In re Hinton), 378 B.R. 371 (Bankr. M.D. Fla. 2007). There, the trustee argued that the court should apportion tax refunds based on each spouse’s income contribution.
Judge Jennemann ruled against the trustee in Hinton, finding nothing in the tax code nor in Eleventh Circuit authority limiting “the ability of married spouses to elect to own federal income tax refunds” by the entireties. In other words, she said, “Ownership of a federal tax refund as [entireties property] is not limited by determining which spouse contributed the most income.”
Since Hinton, “many courts” have reached the same conclusion, Judge Jennemann said.
Judge Jennemann decided that the trustee had failed to rebut the presumption of entireties ownership. She therefore overruled the trustee’s objection to the exemption claim and declared that the debtor and his wife were entitled to receive and retain the refunds.
In a state that allows a couple to hold personal property as tenants by the entireties, a tax refund is not estate property if only one spouse is in bankruptcy, even when all income was earned by the bankrupt spouse, according to Bankruptcy Judge Karen S. Jennemann of Orlando, Fla.
The husband filed a chapter 7 petition. The wife didn’t. The couple filed joint tax returns for two years, giving them refunds totaling some $22,000.
The husband amended his schedules to claim an exemption in all of the tax refunds. The trustee objected, but Judge Jennemann overruled the objection and declared that the refunds were not estate property in an opinion on May 17.