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A Better Partnership
November 20, 2014

COA holds that trial court has discretion to order divorcing spouses to file joint tax returns

In a case of first impression in Michigan, The Michigan Court of Appeals in Butler v. Simmons-Butler, No. 321445, held that a trial court may compel parties to a divorce action to file a joint tax return when it is in the best interest of the marital estate.
 
Christopher and Sherry Butler were married in 2007 but within a few years the marriage suffered an irretrievable breakdown, and the trial court granted a judgment of divorce. As part of the divorce order, the trial court, among other things, required that the parties sign and file a joint tax return. Further, it ordered that each be held jointly responsible for any tax deficiencies, and any refund shall be split equally.
 
Sherry argued that the trial court lacked the discretion to compel her to sign a joint tax return and that such a requirement created a risk of unwarranted future tax liability.  She relied heavily on a Nebraska Supreme Court decision holding that a trial court did not have such discretion. That court held that a trial court could adjust the marital estate distribution if the parties do not consent to signing a joint tax return; rather than compelling them to file together.
 
After examining case law throughout the country, the Michigan Court of Appeals took an alternate route. The Court first held that the default rule is to redistribute the property on hand rather than requiring the filing of a joint tax return. However, the Court, citing to a New Jersey Supreme Court case, held that if the property on hand is insufficient then the trial court has the discretion to order the joint filing of federal tax returns. In making its decision to require the filing, the Court held that such an order
 

“[I]s 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.”
 

Leaving the finding of the factors to the trial court’s discretion, the Court of Appeals remanded the case for further analysis. If the factors are met, however, the trial court may require the joint tax filing.

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