Opinion ID: 2587710
Heading Depth: 3
Heading Rank: 7

Heading: The 2001 Income Tax Refund

Text: Patrick and Kimberly separated on April 11, 2002. They made payments on their 2001 income tax liability from marital funds, and ultimately filed a joint income tax return in October 2002. After the separation but before filing the tax return, Patrick contributed post-separation funds to a personal SEP account. Although he made the contribution in 2002, he applied the deduction to the parties' 2001 tax liability. The IRS issued a tax refund of $8,753, which the superior court found to be Patrick's separate property. Kimberly argues in her cross-appeal that the refund is the result of payments and deductions attributable to the parties, and that no one factor can be said to have caused the refund, which is therefore marital property. This may be true as a general proposition, [57] but may not always be the case in the divorce context. Because marital contributions were inadequate to eliminate liability, the parties still owed federal income tax at the time of separation. Patrick's efforts came after separation and supplemented the marital resources used to satisfy the tax obligation. The reduction in tax liability due to Patrick's SEP contribution eliminated the need for further marital payments and caused payments to exceed liability, resulting in the refund. In these circumstances, we cannot say that the chronological causation methodology applied by the superior court was an abuse of its discretion. We also note that Patrick's SEP contribution benefitted Kimberly by eliminating the marital tax liability. In dividing marital property, courts must consider expenditures of separate property to obtain and preserve marital property. [58] Courts have discretion to credit the contributing spouse. [59] Thus, even if the refund should have been characterized as marital property, the superior court could have properly credited Patrick with the refund in light of the benefit Kimberly received. That Kimberly did not reap the full benefit of this use of Patrick's property does not render the superior court's characterization so inequitable as to warrant reversal. The superior court did not err in characterizing the 2001 federal income tax refund as Patrick's separate property.