Bock v. Dalbey

• Decision Date: 15 June 2012
• Docket Number: No. S–10–973.,S–10–973.
• Citation: 815 N.W.2d 530,283 Neb. 994
• Parties: Matthew John BOCK, appellee, v. Jennifer Lynn DALBEY, appellant.
• Court: Nebraska Supreme Court

283 Neb. 994

815 N.W.2d 530

Matthew John BOCK, appellee,

v.Jennifer Lynn DALBEY, appellant.

No. S–10–973.

Supreme Court of Nebraska.

June 15, 2012.

Syllabus by the Court

[283 Neb. 994]1. Judgments: Appeal and Error. An appellate court independently reviews questions of law decided by a lower court.

2. Divorce: Property Division: Taxes. Ordinarily, a trial court in Nebraska should not consider the speculative tax consequences of its distribution orders unless it has ordered the immediate liquidation or sale of an asset or a party must sell an asset to satisfy a monetary judgment.

3. Injunction: Equity. A mandatory injunction is an equitable remedy that commands the subject of the order to perform an affirmative act to undo a wrongful act or injury. It is considered an extreme or harsh remedy that should be exercised sparingly and cautiously.

4. Injunction: Damages. An injunction, in general, is an extraordinary remedy that a court should ordinarily not grant except in a clear case where there is actual and substantial injury; a court should not grant an injunction unless the right is clear, the damage is irreparable, and the remedy at law is inadequate to prevent a failure of justice.

5. Statutes: Equity: Jurisdiction. When a statute provides an adequate remedy at law, equity will not entertain jurisdiction, and a party must exhaust the statutory remedy before it may resort to equity.

6. Divorce: Property Division: Equity.Neb.Rev.Stat. § 42–365 (Reissue 2008) authorizes a trial court to equitably distribute the marital estate according to what is fair and reasonable under the circumstances.

7. Divorce: Property Division: Equity: Taxes. Under Neb.Rev.Stat. § 42–365 (Reissue 2008), if a party seeking an equitable adjustment presents the court with the tax disadvantages of filing separate returns, a trial court may consider a party's unreasonable refusal to file a joint return. Evidence of a tax disadvantage would normally include the parties' calculated joint and separate returns for comparison.

8. Divorce: Taxes. A trial court does not have discretion to compel parties seeking marital dissolution to file a joint income tax return.

Amy Sherman, of Sherman & Gilner, P.C., L.L.O., for appellant.

Brent M. Kuhn, of Harris Kuhn Law Firm, L.L.P., Omaha, for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, STEPHAN, McCORMACK, and MILLER–LERMAN, JJ.

CONNOLLY, J.

SUMMARY

The district court dissolved the marriage of Jennifer Lynn Dalbey, the appellant, and Matthew John Bock. We granted Dalbey's petition for further review on one question: Does a trial court in a marital dissolution action have the discretion to order the parties to file a joint income tax return? We conclude it does not. The Nebraska Court of Appeals affirmed the trial court's order requiring the parties to file a joint tax return.¹ It cited cases showing that courts have conflicting views and agreed with those courts holding that trial courts do have this discretion. Because a trial court can equitably adjust its division of the marital estate to account for a spouse's unreasonable refusal to file a joint return, we reverse, and remand the cause to the Court of Appeals with directions for further disposition.

BACKGROUND

The parties married in 2006. The district court entered its dissolution decree in August 2010. Many of the facts of this case deal with the district court's division of the marital assets. But the issue here is the court's order requiring that the parties file a joint tax return for 2008 and 2009. The parties filed a joint return for the 2007 tax year. But they had not filed any tax return for 2008 or 2009. The district court, without citing authority, orderedthe parties to file a joint return. It allocated the unspecified refunds or assessments to be shared by the parties in a ratio that equaled each party's contribution of adjusted gross income to their total adjusted gross income. The record does not show what their individual income contributions were for the 2008 and 2009 tax years, but it does show that Bock earned substantially more income than Dalbey.

In affirming, the Court of Appeals framed the issue as whether the Supremacy Clause of the U.S. Constitution barred the district court from ordering the parties to file a joint return. The federal tax code allows married individuals to elect whether to file joint or separate returns. But the Court of Appeals determined that this election did not conflict with a state court's order to file jointly. It stated that domestic relations law is generally a state law matter outside of federal jurisdiction.

ASSIGNMENT OF ERROR

In her petition for further review, Dalbey assigns that the Court of Appeals erred in affirming the district court's order that the parties file a joint income tax return.

STANDARD OF REVIEW

We independently review questions of law decided by a lower court. ²

ANALYSIS

Ordinarily, a trial court in Nebraska should not consider the speculative tax consequences of its distribution orders unless it has ordered the immediate liquidation or sale of an asset or a party must sell an asset to satisfy a monetary judgment.³ But the questions here are (1) whether a district court can consider the tax consequences of one party's refusal to file a joint return in dividing the marital estate and (2) whether it has discretion to order the parties to file a joint return to preserve assets for the marital estate or to equalize its division of the estate.

Married individuals can elect whether to file a joint or separate return. ⁴ For joint returns, the federal government taxes the income of a married couple in the aggregate.⁵ Filing jointly generally, but not always, produces substantial tax savings.⁶But a “[h]usband and wife filing a joint return are jointly and severally liable for all tax for the taxable year (not merely the amount shown on the return), including interest, additions for negligence, and fraud penalties if applicable.” ⁷ The right of election under the federal tax code and the possible exposure to liability have prompted several courts to hold that a trial court cannot order a party to file a joint return.

Few courts, however, have decided this question. This may partially be because marital tax experts advise divorcing couples to privately negotiate an agreement to file a joint return.⁸ Generally, if the parties have agreed to file a joint return, the trial court can incorporate or rely on the agreement in equitably dividing the marital estate and enforce the agreement if necessary.⁹ But other appellate courts have disagreed on whether a trial court, outside of a party's agreement, can compel a party to a divorce proceeding to file a joint return.

Of the courts that have held that a trial court cannot compel a party to file a joint return, Leftwich v. Leftwich¹⁰ is the most cited case. There, unless the wife agreed to file joint tax returns for 2 years of the marriage, the husband would owe about $40,000 in additional taxes. So the trial court conditioned the wife's receipt of her share of marital property upon her filing the joint returns, with the understanding that the husband would pay any additional taxes. The District of Columbia appellate court, concerned with the wife's liability exposure, reversed:

The propriety of considering tax matters in divorce proceedings, however, does not serve as a license for the trial court to compel a party to execute a joint return. The trial court is not at liberty to alter basic precepts of federal or of state tax law....

... A married individual possesses complete discretion to file a separate return, or, with the concurrence of his or her spouse, a joint return....

To sanction the trial court's effectively ordering a spouse to cooperate in filing a joint return would nullify the right of election conferred upon married taxpayers by the Internal Revenue Code. Such a right is not inconsequential; its exercise affects potential criminal and/or civil liabilities of taxpayers.... Married individuals filing a joint return expose themselves to joint and several liability for any fraudulent or erroneous aspect of the return.¹¹

The wife's exposure to liability was the critical factor in the court's holding:

Given the wife's substantial interest in the choice of a filing status, with its concomitant consequences, we find that it was error for the trial court to impose a coercive construction of [I.R.C.] § 6013 [the federal statute permitting a husband and wife to elect to file jointly or separately] on appellant.¹²

Furthermore, the Leftwich court reasoned that even if the trial court could override the wife's election to file a separate return, under equity principles, it should not have resorted to a coercive remedy when a less intrusive one existed: “[T]he trial court well could have remedied any perceived tax disadvantage to the husband by altering the disposition of the marital property.” ¹³ Other courts that hold a trial court cannot compel the filing of a joint return have also held the trial court may nonetheless consider the tax disadvantages of filing separate returnsin its equitable division of the marital estate.¹⁴

But other appellate courts have held that a trial court can compel a party to file a joint tax return.¹⁵ Of these cases, Bursztyn v. Bursztyn¹⁶ is a recent, prominent decision on which the Nebraska Court of Appeals relied. The Bursztyn court conceded that good arguments exist on both sides of the issue. It noted, however, that in New Jersey, a trial court is statutorily required to consider the tax consequences of its alimony and equitable distribution rulings. The Bursztyn court considered an abridgment of an individual's choice whether to file joint or separate tax returns to be a minor intrusion of the parties' individual rights. Finally, the court concluded that because a trial court has discretion to allocate federal tax exemptions for dependent children, it could, when appropriate, compel the parties...