How to Handle a Divorce Tax Refund Split

In a divorce, a tax refund is legally considered marital property. Its division involves a combination of IRS regulations and the specific terms of your divorce agreement. How the refund is split depends on legal determinations of ownership, the calculation method used, and the past financial obligations of one spouse.

Determining Legal Entitlement to the Refund

The primary document governing the division of a tax refund is the divorce decree or settlement agreement. This legally binding document should explicitly state how any joint tax refund will be handled. If the decree outlines a 50/50 split or another allocation method, that agreement dictates how the funds are to be divided between the former spouses.

When a divorce decree is silent on the tax refund, state law determines the legal framework for ownership. In community property states, assets acquired during the marriage, including a tax refund, are considered to be owned equally by both spouses. This means the refund is split 50/50, regardless of which spouse earned more income or had more taxes withheld.

In the majority of states that follow equitable distribution principles, ownership is not automatically equal, and the court aims for a “fair” division. For a tax refund, this involves tracing the funds back to their source. The portion of the refund attributable to each spouse’s individual earnings and tax overpayments is considered their separate property, while the remaining portion is marital property subject to division.

Methods for Calculating Each Spouse’s Share

The proportional or “source of funds” calculation is a common method used by the IRS and family courts to divide a refund. This approach allocates the refund based on each individual’s contribution to the tax overpayment when a simple split is not specified in a legal agreement.

The calculation begins by determining each spouse’s individual tax liability as if they had filed separate tax returns, which involves preparing two pro-forma “Married Filing Separately” returns. You must identify the total tax payments made by each spouse, including federal income tax withheld from Form W-2 and any estimated tax payments. Comparing each spouse’s separate tax liability to their individual payments determines who overpaid and by how much.

The total joint refund is then allocated proportionally. For example, if one spouse’s overpayment accounts for 70% of the total combined overpayment, they would be entitled to 70% of the joint refund. Some divorce decrees may specify a simpler 50/50 split to avoid complex calculations, especially if both spouses had similar incomes.

The Injured Spouse Scenario and Required Information

A joint tax refund can be seized by the government to satisfy the past-due debts of one spouse through a process known as an offset. The non-obligated spouse is referred to as an “injured spouse” and may be able to reclaim their portion of the refund. Debts that can trigger an offset include:

• Past-due federal or state income taxes
• Outstanding student loans
• Overdue child or spousal support payments

To reclaim a share of a seized refund, the injured spouse must file IRS Form 8379, Injured Spouse Allocation. This form requires a detailed breakdown of each spouse’s financial information to calculate the portion of the refund attributable to the injured spouse. You will need to gather all Forms W-2, W-2G, and any Forms 1099 showing federal income tax withholding for both spouses. When completing the form, you must enter each spouse’s income and tax withholding and allocate any tax credits to the spouse who would have claimed the dependent on a separate return.

Procedural Steps to Claim Your Refund Share

The procedure for filing Form 8379 depends on whether the joint tax return has already been filed and if the refund has been offset. There are two primary scenarios for submitting the form to the IRS.

The first scenario involves filing Form 8379 at the same time as your joint tax return. Attach the completed Form 8379 to your Form 1040 and write “Injured Spouse” in the top-left corner of the first page. Filing the forms together can preemptively separate the injured spouse’s portion of the refund before an offset occurs.

The second scenario applies if the joint return has already been filed and the refund was seized. You can file Form 8379 by itself by mailing it to the IRS service center where you filed your original return. The IRS states that processing a standalone Form 8379 can take approximately eight weeks. If your ex-spouse receives the refund and refuses to provide your share as dictated by your divorce decree, your recourse is through the family court by filing a motion to enforce the decree.