Did a divorce order requiring an ex-husband to pay the couple's 1999 taxes release his former wife from New Mexico's joint tax assessment?

Plain-English summary

Brenda K. Murray, later known as Brenda K. Akin, remained individually liable for the couple's unpaid 1999 New Mexico personal income tax even though the divorce order required her former husband to pay it. The order allocated responsibility between the spouses but did not bind the State.

The couple filed a joint federal return and prepared a joint New Mexico return while separating, but never filed the state return. The Department later assessed both former spouses for $634 of tax, plus penalty and interest.

Joint filing made each spouse liable

Regulation 3.3.12.12 NMAC required the state return to use the same joint basis as the federal return. The decision therefore treated each spouse as individually liable for the tax connected to those returns.

The divorce order did not change the State's rights

Murray argued that her former husband alone owed the tax because the divorce proceeding ordered him to pay the couple's remaining 1999 taxes.

The State of New Mexico was not a party to that case. Under the cited decisions, a marital settlement or divorce decree can affect rights and obligations between the former spouses, but it does not alter the rights of a predivorce creditor who did not participate.

Likewise, a contract between a taxpayer and a third party about who will pay tax cannot shift the legal incidence of that tax as between the taxpayer and the State.

Result: protest DENIED. Murray remained liable for the $634 tax assessment, penalty, and interest.

Source-date note

Finding 3 says the divorce order was entered November 6, 2001, while conclusion C refers to a November 1, 2006 decree. The decision does not reconcile those dates.

What this means for you

Divorcing spouses with joint tax liabilities

An agreement can create reimbursement rights between spouses without releasing either spouse from the taxing authority's claim. Address both the government liability and the private allocation.

Taxpayers filing jointly

Joint filing can make each filer responsible for the full liability under the rule applied here. A later separation does not retroactively convert the filed position.

Attorneys drafting marital settlements

State clearly who must pay and indemnify the other spouse, but do not assume that language binds a tax agency that is not a party to the proceeding.

Common questions

Q: Who did the Department assess?
A: Both Murray and her former husband.

Q: How much tax principal was involved?
A: $634 for the 1999 tax year, plus penalty and interest.

Q: Why didn't the divorce order release Murray?
A: New Mexico was not a party, so the order could not alter the State's creditor rights.

Q: Did the order have any effect at all?
A: It could govern responsibility between the former spouses, but not liability to the Department.

Q: Why were both spouses individually liable?
A: They filed jointly for federal purposes and were required to use the same basis for the state return.

Citations and references

Statute and regulation:

• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• Regulation 3.3.12.12 NMAC — state filing status follows the joint federal return

Cases cited:

• Sunwest Bank of Albuquerque v. Rodriguez, 108 N.M. 211, 770 P.2d 533 (1989)
• Continental Inn v. New Mexico Taxation and Revenue Department, 113 N.M. 588, 829 P.2d 946 (Ct. App. 1992)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Brenda K. Murray, aka Brenda K. Akin
• Decision PDF: D&O 07-15

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
BRENDA K. MURRAY, a/k/a BRENDA K. AKIN No. 07-15
TO ASSESSMENT OF 1999 PERSONAL INCOME
TAX ISSUED UNDER LETTER ID L1632194560

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on August 21, 2007, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”) was

represented by Jeffrey W. Loubet, Special Assistant Attorney General. Brenda K. Murray

(“Taxpayer”), now known as Brenda K. Akin, represented herself. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer and her former husband filed a joint federal income tax return for the

1999 tax year.

2. The couple also prepared a joint New Mexico income tax return, but were in the

midst of a marital separation and never filed their state return.

3. By Stipulated Minute Order entered on November 6, 2001 by the Second Judicial

District Court for the County of Bernalillo, New Mexico, the Taxpayer and her husband were

divorced and the husband was ordered to pay the couple’s remaining 1999 taxes.

4. The State of New Mexico was not a party to the Taxpayer’s divorce action.

5. On July 22, 2003, the Department assessed the Taxpayer and her former husband for

$634.00 of personal income tax due for the 1999 tax year, plus interest and penalty.

6. On August 9, 2003, the Taxpayer filed a written protest to the assessment.
   DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the Department’s assessment of

New Mexico personal income tax, interest and penalty for the 1999 tax year. NMSA 1978, § 7-1-

17(C) states that any assessment of tax made by the Department is presumed to be correct. See also,

Holt v. New Mexico Department of Taxation & Revenue, 2002 NMSC 34, ¶ 4, 133 N.M. 11, 59 P.3d

491. Accordingly, it is the Taxpayer’s burden to come forward with evidence and legal argument to

establish that she is entitled to an abatement of the assessment, in full or in part.

The Taxpayer maintains that she is not liable for the Department’s assessment because her

former husband was ordered to pay the couple’s remaining 1999 taxes in the couple’s divorce

proceeding. New Mexico law is clear, however, that the terms of a marital settlement or divorce

decree is not binding on third parties who were not parties to the proceeding. In Sunwest Bank of

Albuquerque v. Roderiguez, 108 N.M. 211, 216, 770 P.2d 533, 538 (1989), a husband and wife

executed a promissory note in connection with the husband’s business. The couple subsequently

divorced, and the settlement agreement required the husband to assume the debts of the business.

When the bank later sued the wife for payment of the note, she argued that the settlement agreement

absolved her of liability. The New Mexico Supreme Court disagreed, stating:

Finally, there is no merit to the allegation that her nonparticipation in A R Roofing or
that her marriage settlement agreement, which required Albert to assume the debts of
the business, absolves Patsy from liability under the note. Although the agreement
may affect the rights and liabilities of the husband and wife between themselves, it
has no effect upon the rights of a predivorce creditor who is not a party to the
agreement. See New Mexico Educators Fed. Credit Union, 102 N.M. at 18, 690 P.2d
at 1012.

See also, Continental Inn v. New Mexico Taxation and Revenue Department, 113 N.M. 588, 591,

829 P.2d 946, 949 (Ct. App. 1992) (contracts between a taxpayer and a third party regarding the

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payment of taxes cannot shift the taxpayer's legal incidence of the tax as between the state and the

taxpayer).

In this case, the Taxpayer and her former husband filed a joint federal income tax return for

the 1999 tax year and were required to file their state return on the same basis. See, Department

Regulation 3.3.12.12 NMAC. As a result, each of them is individually liable for taxes due in

connection with those returns. Any agreement concerning payment of marital debts reached in the

context of the Taxpayer’s divorce proceeding is not binding on the Department and does not affect

The Taxpayer’s liability for payment of delinquent taxes due to the state.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the assessment issued under Letter ID

L1632194560, and jurisdiction lies over the parties and the subject matter of this protest.

B. The Taxpayer and her former husband are both individually liable for taxes due in

connection with their 1999 income taxes.

C. The divorce decree entered on November 1, 2006 has no effect on the Taxpayer’s

liability for payment of delinquent 1999 income taxes due to the state.

For the foregoing reasons, the Taxpayer’s protest IS DENIED.

DATED August 22, 2007.

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