An interesting case on tax in the US recently came to my attention. It involved a District Court case where a wife’s forged signature on joint tax returns was still deemed a valid tax return, Coggin (DC NC 17 July 2018)122 AFTR 2d 2018-5046).
Although this case involved a widow who was seeking a singular form of US tax relief called “innocent spouse exemption”, it struck me that this ruling might have ramifications for some English/US divorce cases.
I have come across scenarios where spouses commonly leave the filing of their complicated US tax returns to their spouse (even after they separate). In this case joint tax returns were filed by the husband for the period 2002-2007.
As you would expect, joint US tax returns require both parties to sign them. However, in this case it was deemed that despite the husband forging the wife’s signature on the returns, they were still valid “tacitly” because the wife had trusted him “with all financial matters” throughout the marriage. In addition, and in this case significantly she had never filed her own individual tax returns during the periods the joint returns were filed.
Furthermore, in the US spouses cannot file separate tax returns where a joint one has been filed and if they seek to suggest a forgery in the signing of the joint return they must make any separate tax return in a “timely manner”. In this case the wife had done neither.
From an English international matrimonial lawyer’s perspective, there are some key learnings from this case of which that we should be aware and to which we should be alerted:
- Where there are separated or divorcing spouses with a continuing connection to the US – for example where both spouses are US citizens but residing in England, the spouse who might traditionally have been responsible for filing tax returns continues to assume responsibility for doing so.
- Where (as is the case for many US citizens living in the UK) one estranged spouse fails to realise they ever needed to still do a US tax return after moving to England (even if their estranged spouse did know and traditionally did so on their behalf since their move to England).
- Where these factors arise; then it is probably wise in the event of separation or divorce (especially for the first year’s tax returns after separation or where backdated joint returns are needed and before divorce) to seek advice not only from an independent international family lawyer in England, but also an independent US tax specialist. (Kingston Smith, a fellow member of Beacon Gainer are able to put you in touch with such specialists through their extensive US connections).
- Although the estranged spouse might have acted completely in the other spouse’s best interests during the marriage, once a separation or divorce is contemplated their intentions and approach to the tax returns might change or could well no longer best serve the estranged spouse’s interests.
Therefore, this case would seem to suggest where:
- the estranged spouse did not file their own US tax returns for all relevant periods; and
- their former spouse traditionally filed them on their behalf (with or without asking for their signature!)
Then that US tax return even if prejudicial but unchallenged quickly could still stand in US law.
If you or anyone you know has or is contemplating separation or divorce and are US citizens residing in England this aspect of your finances needs to be considered carefully.
Liabilities for tax can be considerably different upon separation and issues often arise over what tax liabilities should be joint or an individual spouse’s responsibility. Therefore, a joint tax return shortly before or just after separation but before divorce might impact a financial settlement upon divorce.
Lucy Greenwood is a specialist international family lawyer. If this article has raised any concerns for you please contact Lucy.firstname.lastname@example.org.
*This article is based on a newsletter from Krycler, Ervin, Taubman & Kaminsky, CA.
Lucy Greenwood is a Partner at iFLG. Lucy has a very broad depth of experience and knowledge in resolving family issues having specialised exclusively in the field of family law for over 20 years. Lucy specialises in cross border family work including the drafting of pre-nuptial and post–nuptial agreements having done such work involving many parts of the world for many years.