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Divorce and Taxes

Divorce and Taxes Article

In Bursztyn v. Bursztyn, 379 N.J. Super. 385 (App. Div. 2005), the Appellate Division decided a case about the Court’s power to compel parties to file joint tax returns.  But, perhaps more interesting than its holding, this was a case that shows the interplay of divorce and taxes in a contentious divorce situation.

In the years leading up to their divorce, the Bursztyns lived in an extravagant style while running up tax debts of $243,000 to the IRS, $33,000 to the State of New York, and $17,900 to the State of New Jersey.  Their tax returns for 1999, 2000 and 2001 were unfiled, and the expected additional liabilities would be significant.  A joint filing would reduce these additional liabilities substantially.

The Court found that the parties had insufficient income to support their spending habits.  They financed spending in excess of their income by failing to live up to their tax obligations.  They truly robbed from Peter to pay Paul.  In this case, Mr. Bursztyn took draws from his business, maxed out 24 credit cards at one time, and liberally withdrew from their retirement plan until nothing was left.

Certainly, Mrs. Bursztyn had lavish tastes, and the couple spent $134,000 over a three year period on jewelry!  The couple threw extravagant parties and sent their sons to separate, expensive private schools in New York.

So what is the moral of this story?  During the good times, Mrs. Bursztyn apparently acquiesced in her husband’s lavish spending and his use of business accounts as a personal piggybank.  She certainly did not object to the jewelry purchases.  But, when their financial excesses came home to roost, Mrs. Bursztyn challenged her husband’s reporting of income and engaged in a classic forensic accounting challenge of his business, refusing to file joint returns to minimize additional tax liabilities for the unfiled years under the auspices that she believed his tax reporting was fraudulent.  In essence, she brought the IRS into her divorce. Usually not a good idea.  The dispute persisted to the point of trial and even up on appeal.  Imagine the money spent litigating this issue!  An that is before dealing with the IRS and State taxing authorities.  Doubtlessly, the cost of the legal battle was far in excess of the savings at the end of the day.

In a divorce or family law case it is important to identify potential tax problems and to consult a reputable Tax Attorney.  Often, it will be far better to work as a team to resolve tax liabilities than to throw good money after bad fighting a losing battle over who is at fault and who is responsible.  In such situations, it is important to have a Tax Lawyer in your corner.  As lawyers with expertise in Tax Law and Family Law, we would be happy to offer you a free consultation on the overlap between your divorce and tax issues.

Call us today for a free consultation at (201) 529-8024.