Bucci & Dix

Court examines equitable division of tax refunds

In the divorce proceedings of King v. King, the Virginia Court of Appeals affirmed a Circuit Court decision deeming a portion of federal and state tax refunds to be marital property and distributing shares to both parties.  

The Kings entered into a pre-marital agreement which expressly identified all separate property of the parties would remain separate during the marriage and any gains or losses from those separate properties would also be separate in nature.  Among Mr. King's pre-marital separate property was a beach-house.  The parties were married for a time, then separated.  Despite the separation, however, the parties filed a joint tax return.  The return indicated a significant loss on the beach-house.  This loss resulted in a large tax refund to the parties.

While the beach-house remained Mr. King's separated property throughout the marriage, the Virginia Court of Appeals found the trial court did not err in apportioning part of the tax refund to Mrs. King.  Evidence at trial showed that while the tax refund was due to the loss on the separate property beach-house, the amount of the refund was significantly larger than it would otherwise have been due to the parties' filing jointly.  The trial court correctly traced the difference in the size the refund due to the method of filing and apportioned part of the refund to Mrs. King.  Tracing of investment, returns, losses, and tax implications is extremely important in maximizing the equitable distribution due to a party in any divorce proceeding.