Kemp Klein

Mine, Yours and the IRS

Spouse’s IRS debt can impact jointly-owned property

If you and your spouse jointly own property in Michigan, there is a good  chance that you own the property as “tenants by the entirety.” Under this type of ownership, which can only exist between married persons, each spouse has identical rights to the property. Neither spouse may unilaterally separate out his or her own share in the property and the property rights may only be divided upon the consent of both parties or by divorce. For these reasons, under Michigan law, a creditor of either the husband or wife alone would not be able to seek a lien or levy against the property.

However, the Internal Revenue Service (“IRS”) is not a typical creditor. If either you or your spouse alone owes taxes to the IRS, the IRS may attach a federal tax lien on the property to the extent of the debtor-spouse’s rights in the property. The IRS may even force a foreclosure sale of the property and take half of the proceeds from the sale. The non-debtor spouse would receive the remaining half.

If the non-debtor spouse believes he or she should receive more than 50% of the sale proceeds, such spouse may make an argument to try to receive a greater share. However, the courts will begin with the presumption that the IRS is entitled to one-half. One non-debtor spouse tried to argue that she should receive more than 50% because her life expectancy was longer than her husband’s and, therefore, she has a greater interest in the property. The court disagreed and allowed the IRS 50% of the proceeds.

For further information regarding these matters, please contact Kemp Klein.