In re Garbett
Aug 18, 2009OUTCOME: Judgment for Defendant Debtors
Each spouse had exemptible interest in federal income tax refund, despite debtor-husband's lack of any withholding. To determine whether each debtor-spouse had an exemptible interest in a federal i ... ncome tax refund, despite the fact that the Chapter 7 debtor-husband's annual income was only $1,080.48 and that he had no income taxes withheld, a bankruptcy court would not apply "withholding rule," under which the refund would be apportioned between the spouses based on their respective withholdings. Rather, the court would employ the "50/50 rule," pursuant to which each spouse was presumed to have an equal interest in the refund, subject to rebuttal based on the circumstances of each individual case. To rebut the presumption, the trustee had to show that the debtors clearly intended for the refund attributable to each spouse to be his or her separate property.
