May 31, 2020 11:27 pm

Estimated Taxes of Spouses Allocated According to a Pre-nup

Spouses can make separate estimated tax payments and apply them to a jointly filed return. Or they can make joint estimated tax payments and allocate them to separate returns. When a couple has a pre-nuptial agreement requiring one spouse to pay all the taxes or makes the other spouse responsible for taxes with respect to certain transactions, such as the sale of property, then any allocation of estimated taxes (should the couples file separately or get divorced) follows suit. Take the case of a couple with a pre-nuptial agreement under which the husband assumed responsibility for all taxes owed during the marriage; the wife had responsibility under the agreement to pay taxes on the sale of a certain property. When it came time for her to pay her own taxes, she wanted an equal allocation of the estimated tax payments that had already been paid through the application of a prior joint return overpayment, the payment accompanying a filing extension request, and other estimated tax payments. But the Tax Court refused to accept her position (Abigail Richlin, TC Memo 2020-60).

Regulations require the allocation of joint estimated tax payments “in such manner…as the parties may agree.” While the regulations don’t specify how this “agreement’ should be evidenced, the court said that the pre-nuptial agreement controls in this situation. The husband in fact had made all tax payments, so honoring the parties’ agreement meant the wife was not entitled to any allocation of the payments.

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Tax Glossary

Foreign tax credit

A credit for income taxes paid to a foreign country or U.S. possession. 401(k) plan. A deferred pay plan, authorized by Section 401(k) of the Internal Revenue Code, under which a percentage of an employee’s salary is withheld and placed in a savings account or the company’s profit-sharing plan. Income accumulates on the deferred amount until withdrawn by the employee at age 59?

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