My question is if someone comes to you to file BK individually, but she is due a tax refund that is in her name as well as her husband’s, could the bank trustee only take 1/2 of the refund since the other 1/2 is considered an asset of her husband who is not filing?
–Jennifer
Jonathan Ginsberg responds: Jennifer, you did not say where you live, but I will answer based on my experiences here in the Northern District of Georgia.
When this situation has come up, I show the tax refund as 50% property of the debtor, with the other 50% not part of the bankruptcy estate. In 20 years, I have never had a trustee attempt to go after the non-filing spouse’s 50%.
If the trustee was to try to go after this money, I would think that we could look at the source of the refund kind of like the way a Superior Court judge would evaluate assets in a domestic relations (divorce) case. Georgia is an "equitable division" State, meaning that the judge has the power to decide what is fair.
In your case, if your husband earned 95% of the income, the trustee might argue that more than 50% of the refund is his property. In my view, that argument would not go very far.
I also think it matters how much money is at stake. Usually tax refunds are less than $10,000. I question whether a trustee would engage in litigation over $5,000 or less.
One other point – in most cases, you get a refund because your withholdings were higher than they needed to be. In effect, you are using the U.S. Treasury as a (no interest) savings account. I think that the U.S. trustee could look at your withholding pattern and make an argument that you have more disposable income than what is shown on the petition, if you adjust your withholdings to minimize your refund.