United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

____________

No. 08-6013

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In re: Brian Jay Carlson and *

Coalee Breanna Carlson, *

*

Debtors *

*

Coalee Breanna Carlson, * Appeal from the United States

* Bankruptcy Court for the

Debtor - Appellant * District of Minnesota

*

v. *

*

Timothy D Moratzka, *

*

Trustee - Appellee *

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Submitted: August 26, 2008

Filed: September 10, 2008

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Before FEDERMAN, MAHONEY and VENTERS, Bankruptcy Judges

FEDERMAN, Bankruptcy Judge 
1

 The Honorable Nancy C. Dreher, Chief Bankruptcy Judge, United States

Bankruptcy Court for the District of Minnesota.

2

Debtor Coalee Carlson appeals the Bankruptcy Court’s1 Order sustaining the

Chapter 7 Trustee’s objection to her claimed exemption in an income tax refund. The

basis for the objection was that she did not earn any of the income or pay any of the

withholdings to which the refund was attributable. For the reasons that follow, we

affirm.

The facts in this case are undisputed. Coalee Carlson and her husband, Brian

Carlson, filed a joint Chapter 7 petition on January 8, 2008. After they filed their

bankruptcy petition, they filed joint state and federal tax returns for 2007 and received

tax refund checks totaling $13,842. Brian was the sole wage-earner during 2007;

Coalee was a homemaker and earned no income. The Carlsons say that they deposited

the refund checks into a joint bank account and used the funds to pay household bills.

They each claimed half of the refunds as exempt on their Schedule C. Brian does not

have enough available exemptions to claim the entire amount of the refunds exempt

himself, and without Coalee’s exemption, $6,186.47 would be non-exempt. The

Chapter 7 Trustee objected to Coalee’s claiming the exemption because Brian was the

sole wage earner in 2007 and, thus, the refunds were entirely his property. The

Trustee argued that Coalee had no property interest in the refunds and thus was not

entitled to claim exemptions in them. The Bankruptcy Court sustained the Trustee’s

objection and Coalee appeals. 
2

 First Nat’l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th Cir.

1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997); Fed. R.

Bankr. P. 8013.

3 In re Klienfeldt, 287 B.R. 291, 292 (B.A.P. 10th Cir. 2002).

4 In re Benn, 491 F.3d 811, 813 (8th Cir. 2007) (“A debtor’s anticipated tax refund,

to the extent it is attributable to events occurring prior to the filing of the petition for

bankruptcy, is part of the bankruptcy estate.”).

5

 See Thomas v. Peyton, 274 B.R. 450, 456 (E.D. Va. 2001) (“When spouses file a

joint petition for bankruptcy, the separate estates are administratively consolidated for

convenience and efficiency but they remain legally distinct for purposes of satisfying

creditors’ claims.”); In re Beck, 298 B.R. 616, 624 (Bankr. W.D. Mo. 2003) (“Although

the filing of a joint case creates an estate under 11 U.S.C. § 541, separate estates exist for

each debtor, unless or until the court orders substantive consolidation.”); 11 U.S.C. §

522(m) (“Subject to the limitation in subsection (b), this section shall apply separately

with respect to each debtor in a joint case.”).

3

The BAP reviews findings of fact for clear error, and legal conclusions de

novo.2

 Since the facts are undisputed, and the resolution of this case involves only

issues of law, our review is de novo.3

A tax refund that is received post-petition is property of the estate if it is

attributable to wages earned and withholding payments made during prepetition

years.4

 Even though the Carlsons filed a joint bankruptcy petition, the Bankruptcy

Code views the two of them as separate debtors with separate estates, and the Carlsons

must claim exemptions individually under § 522(m) of the Bankruptcy Code.5

 The

question here is whether Coalee has an ownership interest in a portion of the tax

refunds such that she may claim an exemption in them.

The parties correctly point out that bankruptcy courts have essentially taken

three approaches to the allocation of income tax refunds between spouses who file a
6

 See In re Klienfeldt, 287 B.R. at 292 (listing the three approaches) (citing In re

Lyall, 191 B.R. 78, 85 (E.D. Va. 1996)).

7

 See, e.g., Kleinfeldt, 287 B.R. at 292-93; In re WDH Howell, 294 B.R. 613, 618

(Bankr. D. N.J. 2003); In re Levine, 50 B.R. 587 (Bankr. S.D. Fla. 1985).

8 See, e.g., In re Kestner, 9 B.R. 334 (Bankr. E.D. Va. 1981).

9

 See, e.g., In re Trickett, ___ B.R. ____, 2008 WL 2885731 (Bankr. D. Mass. July

25, 2008); In re Marciano, 372 B.R. 211 (Bankr. S.D. N.Y. 2007). In re Barrow, 306

B.R. 28 (Bankr. W.D. N.Y. 2004); In re Hejmowski, 296 B.R. 645 (Bankr. W.D. N.Y.

2003); Loevy v. Aldrich (In re Aldrich), 250 B.R. 907, 913 (Bankr. W.D. Tenn. 2000).

10 See Minn. Stat. Ann. § 519.01 (declaring that women shall retain the same legal

existence and legal personality after marriage as before, and that every married woman

shall receive the same protection of her rights as a woman which her husband does as a

man, including the right to sue in her own name) and § 519.02 (providing that all property

4

joint tax return, where one of them is the main or sole income earner.6 The first

approach, referred to as the majority approach, allocates the joint tax refund between

the spouses in proportion to their respective tax withholdings.7

 This is the approach

relied on by the cases cited by the Bankruptcy Court, with which we agree. Similarly,

the second approach divides the refund according to the income generated by each

spouse.8

 In this particular case, because Coalee had no income, and no withholding,

the result under the first and second approaches would be the same. The third

approach, argued here by the Carlsons, would split the refund equally between the

spouses, regardless of the source of the income or tax withholding.9

The parties agree that we should apply Minnesota law to determine who owns

the income tax refunds and, therefore, who may claim an exemption in them.

However, they point to no Minnesota law directly addressing this particular issue, and

we found none. The parties further agree that Minnesota is neither a community

property nor a tenancy by entireties state, and, in general, has no presumption of equal

ownership between spouses. Rather, with certain limited exceptions, a spouse in

Minnesota is presumed to separately own property titled in his or her own name.10 As
owned by a woman at the time of her marriage shall continue to be her separate property

after marriage, and that any married woman may acquire property free from the control of

her husband as fully as if she were unmarried).

11 See Kleinfeldt, 287 B.R. at 293.

12 See, e.g., Aldrich, 250 B.R. at 911; Hejmowski, 296 B.R. at 650. 

13 Minn. Stat. Ann. § 518.003, subd. 3b (2007). 

14 Minn. Stat. Ann. § 518.58, subd. 1 (2007). See also Crace v. Crace, 396

N.W.2d 877, 881 (Minn. App. 1986) (holding that a marital dissolution court’s equal

division of potential refunds resulting from joint tax returns was not error under §

5

particularly relevant here, Coalee’s counsel candidly conceded at oral argument that

the Bankruptcy Court was correct when it stated that a spouse’s income (or paycheck)

is considered to be that spouse’s separate property in Minnesota, until that spouse

takes some action to convert it to joint property or otherwise convey it to the other

spouse. It follows, then, that the taxes withheld from such spouse’s income would

likewise be that spouse’s property and, since a tax refund essentially represents the

government’s repayment to the taxpayer of an overpayment made by that taxpayer,11

such a refund is the property of the spouse who earned the income and overpaid the

tax.

Coalee contends, however, that we should look to Minnesota’s marital

dissolution laws for guidance, as many of the courts applying the 50/50 split of such

refunds have done.12 Coalee points to § 518.003 of the Minnesota Statutes, which

provides that, for purposes of marital dissolution, property acquired by either spouse

subsequent to the marriage is presumed to be jointly-owned marital property

regardless of whether title is held individually or by the spouses in a form of coownership.13 Further, Minnesota law provides that, in the context of a dissolution of

marriage, the court shall make a just and equitable division of the marital property,

considering all relevant factors, including the contribution of a spouse as a

homemaker.14 
518.58); Rundell v. Rundell, 423 N.W.2d 77, 81 (Minn. App. 1988) (holding that a

marital dissolution court’s determination that an expected tax refund was a marital asset

and awarding it to the husband was not error). 

15 Minn. Stat. Ann. § 518.003, subd. 1 (2007). Accord In re Lock, 329 B.R. 856,

859 (Bankr. S.D. Ill. 2005) (applying Illinois law, which similarly limits the application

of its marital dissolution statute to divorce cases).

16 Accord WDH Howell, 294 B.R. at 617.

6

Although some bankruptcy courts in other states have looked to their marital

statutes for guidance, we agree with the Bankruptcy Court here that such reliance is

misplaced in this context, particularly since § 518.003 (which, as stated above,

provides for the presumption of equal ownership of marital property) expressly states

that its terms apply only in marital dissolution proceedings.15

In addition, the marital dissolution statutes providing for a presumption of equal

ownership in that context have different goals and policy rationales than the

Bankruptcy Code does. Marital dissolution laws are intended to accomplish an

equitable distribution of assets between spouses. The presumption of equal ownership

comports with that purpose. In contrast, the bankruptcy scheme promotes an equitable

distribution among debtors’ creditors. Equitable issues as between co-debtor spouses

are not relevant to this analysis.16 As a result, even disregarding the express limitation

of Minnesota’s marriage dissolution statutes to divorce cases, the reliance on such

statutes is not appropriate in bankruptcy cases.

Coalee next argues that, if the wages and withholdings were her husband’s

property when they were earned, the filing of joint tax returns and/or the depositing

of the joint refund checks into a joint account transformed the refunds into joint

property. To the contrary, however, both the IRS and the Minnesota Department of

Revenue treat a refund as credited to the taxpayer who made the overpayment of the
17 26 U.S.C. § 6402(a) (directing the treasury secretary to credit and refund any

overpayment of tax to “the person who made the overpayment”); Minn. Stat. Ann. §

289A.50 (stating that “a taxpayer who has paid a tax in excess of the taxes lawfully due .

. . will be refunded or credited with the overpayment”) (emphasis added).

18 In re Wetteroff, 453 F.2d 544, 546 (8th Cir. 1972). 

19 Id.

20 Id. See also Kleinfeldt, 287 B.R. at 293 (citing Callaway v. Commissioner of

Internal Revenue, 231 F.3d 106, 117 (2d Cir. 2000) (holding that the filing of a joint tax

return does not convert the income of one spouse into income of another spouse)); United

States v. Elam, 112 F.3d 1036, 1038 (9th Cir. 1997) (“[a] joint return does not itself create

equal property interests for each party in a refund [and] [s]pouses who file a joint return

have separate interests in any overpayment, the interest of each depending upon his or her

relative contribution to the overpaid tax.”); WDH Howell LLC, 294 B.R. at 619-20

(holding that neither the filing of a joint return, nor the issuance of a joint refund check,

transforms the refund into joint property).

21 In this particular case, if the Carlsons were correct that the filing of the joint tax

returns and/or the deposit of the refunds into a joint account transformed them into joint

property, then the transformation into joint property would have been an avoidable

transfer of estate assets from Brian to Coalee because property rights are fixed as of the

date of the filing of the bankruptcy petition, and the Carlsons filed the joint returns after

they filed their petition.

7

tax,17 regardless of whether a joint return is filed. Consistent with that premise, the

Eighth Circuit in Wetteroff held that the Internal Revenue Code provision allowing a

husband and wife to file a joint tax return does not affect or change ownership rights

between the taxpayers.18 The Eighth Circuit further suggested that a joint tax return

cannot be viewed as a conveyancing instrument because it contains no language of

conveyance.19 Therefore, the Eighth Circuit held, the debtors in Wetteroff failed to

establish that a refund based on the husband’s income was held by the spouses as a

tenancy by the entirety under Missouri law.20 As the Trustee urges, this would also

be true under Minnesota law because of the presumption that spouses own property

separately unless there is an act of conveyance to the other spouse.21 
22 See Aldrich, 250 B.R. at 912 (holding that it was “inconsistent and

fundamentally unfair” to hold a spouse jointly liable for a tax deficiency debt but prevent

her from reaping any portion of the good fortune of a tax refund). But see WDH Howell,

294 B.R. at 618 (stating that 26 U.S.C. § 6013(d)(3) has been interpreted to hold a wife

responsible for the tax liability of her husband if they have filed a joint return, even

though she did not earn the income giving rise to the tax obligation, but expressly

disagreeing with Aldrich that it was fundamentally unfair to hold that the wife did not

have a property interest in the refund). 

23 See WDH Howell, 294 B.R. at 618 (noting that the “United States Tax Court,

however, has consistently held that the filing of a joint tax return does not have the effect

of converting the income of one spouse into the income of the other, regardless of each

spouse’s potential liability”) (citing Robert A. Coerver v. Commissioner of Internal

Revenue, 36 T.C. 252, 1961 WL 1128 (1961), aff’d per curiam, 297 F.2d 837 (3d Cir

1962)).

24 294 B.R. at 619 and n.6 (“If a spouse is concerned with liability [for filing a

joint tax return], the filing of a separate return insulates the non-income producing spouse

from any tax liability.”) (citation omitted).

25 Kleinfeldt, 287 B.R. at 295.

8

Coalee asserts that she should also be considered to be the owner of half of the

refunds for policy reasons. First, she asserts that it is inconsistent and fundamentally

unfair to make both spouses liable for tax liability on a joint return regardless of the

respective incomes, but to then say that the non-income-earner is entitled to none of

the refund.22 However, that is how the IRS views the situation23 and, as the Court in

WDH Howell pointed out, taxpayers have a choice as to whether to file a joint income

tax return.24 They often do so in order to benefit from perceived tax advantages.

However, “this [does] nothing to alter the fact that the overpayment of tax

withholdings which ultimately resulted in a tax refund clearly came from the

Debtor.”25
26 See Aldrich, 250 B.R. at 912.

27 See 26 U.S.C. §§ 24(c) and 152(c). See also Nobles v. CIR, T.C. Memo. 2007-

277, 2007 WL 2687617 (Sept. 13, 2007) (denying a child tax credit because the petitioner

could not substantiate the dollar amount he paid towards the support of the children).

28 26 U.S.C. § 21(b)(2)(A) (“The term ‘employment-related expenses’ means

amounts paid for the following expenses, but only if such expenses are incurred to enable

the taxpayer to be gainfully employed . . . [for] expenses for the care of a qualifying

individual.”) (emphasis added).

9

Coalee also asserts that it is insulting to stay-at-home parents to not allocate any

portion of income tax refunds to them.26 That may be true in the context of a marital

dissolution proceeding because, as stated above, the issue in those cases is an

equitable division of property as between the spouses. However, as stated, the goal

in bankruptcy, in contrast, is to create equity among the spouses’ creditors. Allowing

debtors to “transform” separate property to joint property, with the result being to

allow a co-debtor spouse to claim an exemption in property she does not own, or to

allow a non-debtor spouse to keep half a tax refund out of the debtor-spouse’s estate,

is not equitable.

Coalee next argues that she should be given credit for the part of the refunds

that were based on Child Tax and Child and Dependent Expense Credits because she

was the primary caretaker of the children. However, these credits are not based on

those types of considerations. Rather, in order to receive either credit, the child must

be a dependent or “qualifying child” of the claimant, which, as the Trustee suggests,

appears to require at least some amount of financial support,27 and, in the case of the

Child and Dependent Care Credit, the taxpayer must have actually paid the child care

expenses.28 Thus, even assuming a taxpayer could receive a refund for these credits

while having no tax liability or withholdings against which they could be credited, it

appears unlikely that Coalee would have been able to claim the credits if she had filed

a separate return because she did not provide financial support or pay any of the child
29 See Trickett, 2008 WL 2885731 at *5. 

30 Two Minnesota courts have likewise concluded that a joint tax refund should be

allocated in proportion to the respective withheld tax contributions, albeit on equitable

grounds and expressly limited to the facts of those cases. See In re Buchholtz, 259 F.

Supp. 31, 32 (D. Minn. 1966); In re Jones, 337 F. Supp. 620 (D. Minn. 1971).

10

care expenses. However, we need not decide that here, because Coalee chose not to

file a separate return. Since she incurred none of the tax liability against which the

credits were actually applied, Coalee is not entitled to claim a property interest in the

refunds based on those credits.

Finally, Coalee argues that the 50/50 approach is preferable because it provides

a bright line test.29 However, the allocation of a refund based on the spouses’

respective withholdings would not appear to be a difficult task in most cases. In

addition, while we see the value in courts adopting bright line tests for simplicity in

appropriate circumstances, it is not appropriate to do so if that is contrary to the law.

In sum, we conclude that the Bankruptcy Court did not err in finding that, in

Minnesota, a spouse who did not pay any of the withholdings to which a joint income

tax refund is attributable has no ownership interest in the refund.30 As a result, Coalee

was not entitled to claim exemptions in the refunds resulting solely from Brian’s

withholdings. The Bankruptcy Court’s Order sustaining the Trustee’s objection to her

exemption is, therefore, AFFIRMED.