Can Virginia levy my entire joint bank account to collect my spouse's tax debt from before we were married?

Plain-English summary

A husband and wife married in April 2018 and had held a joint checking account together since May 2018 -- an ordinary account where their paychecks were deposited and everyday bills were paid from. In March 2022, the Department placed a lien on that account to partially collect on individual income tax assessments against the husband alone, from 2004, 2006, and 2008 -- all years well before the marriage. The couple didn't dispute that the husband actually owed the tax. Instead, they raised two separate arguments for getting some of the levied money back.

First, they argued that because their 2021 joint federal tax refund -- deposited into the account shortly before the lien hit -- was made up mostly of the child tax credit, additional child tax credit, and earned income tax credit, it should be protected by Virginia's "poor debtor's exemption," which generally shields those specific credit-based refund amounts from creditors. The Department rejected this on two independent grounds: first, Virginia law explicitly carves state tax liens out of the poor debtor's exemption entirely -- that exemption protects against private creditors, not the state's own tax collection; and second, even if it could otherwise apply, the Virginia Supreme Court has held that once exempt funds get deposited into a general account and mixed with other money (as happened here), they lose their exempt character. Both reasons independently doomed the exemption argument.

Second -- and this is where the couple succeeded -- they argued the wife's own money in the account shouldn't be swept up to pay a debt that was solely her husband's, especially one that predated their marriage entirely. Virginia law presumes spouses own a joint account's funds equally (50/50), and Virginia's own courts have held that only the debtor-spouse's presumed half can be reached by a creditor collecting from just that spouse -- consistent with the Department's own long-standing policy of not holding one spouse liable for the other's pre-marriage tax debts. The Department agreed: half the account belonged to the wife and should never have been touched, so a partial refund was ordered for that half.

What this means for you

Married couples where only one spouse has a pre-marriage tax debt

A state tax lien on your joint account can only reach the debtor-spouse's presumed half of the funds -- Virginia law presumes each spouse owns an equal share, and a lien collecting from only one spouse's liability can't sweep the other spouse's half, especially for a debt that predates the marriage.

Anyone hoping a federal tax-credit refund is protected from a state tax lien once it's in the bank

Don't count on it. The poor debtor's exemption that shields child tax credit, additional child tax credit, and earned income credit refunds from ordinary creditors specifically does not apply to state tax liens -- and even where the exemption might otherwise apply, depositing that refund into a general account and mixing it with other funds erases its protected status entirely.

Accountants and tax professionals advising clients with a pre-marriage tax liability and a new joint account

If a client's tax debt predates their marriage, remind them that a joint account with their new spouse isn't fully shielded, but it also isn't fully exposed -- expect only the debtor-spouse's presumed half to be reachable, and be ready to invoke the Department's own consistent policy (and the case law behind it) to recover the other spouse's share if a lien overreaches.

Common questions

Q: Does Virginia's poor debtor's exemption protect my tax refund from a state tax lien?
A: No -- Virginia law specifically excludes state tax liens from the poor debtor's exemption that would otherwise shield child tax credit, additional child tax credit, and earned income credit refund amounts from ordinary creditors.

Q: What if I deposit an otherwise-protected refund into a joint account and mix it with other money?
A: That commingling itself destroys any exempt status the funds might have carried, according to Virginia Supreme Court precedent -- separate from the state-tax-lien carve-out, which independently defeats the exemption here anyway.

Q: Can Virginia levy an entire joint account to collect one spouse's tax debt?
A: No -- Virginia presumes each spouse owns half the funds in a joint account, so only the debtor-spouse's presumed half can be reached by a lien collecting solely that spouse's liability.

Q: Am I liable for my spouse's tax debts from before we were married?
A: Generally no -- it's the Department's long-standing policy not to hold one spouse liable for the other spouse's tax liabilities accrued in years before they were married (or before a joint return was filed).

Citations and references

• Va. Code § 34-26(9) (poor debtor's exemption for certain federal refund amounts)
• Va. Code § 34-3 (exemption doesn't apply to state tax liens)
• Bernardini v. Central National Bank, 223 Va. 519 (1982) (commingling destroys exempt status)
• Va. Code § 6.2-606 A (joint account funds presumed owned equally)
• Lewis v. House, 232 Va. 28 (1986) (only half of joint account leviable for one spouse's debt)
• P.D. 08-44 (4/17/2008) (spouse not liable for other spouse's pre-marriage tax debt)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-63

Original ruling text

May 24, 2023

Re: § 58.1-1821 Application: Individual Income Tax

Dear * :

This will respond to your letter in which you seek the return of a portion of the tax lien levied against a joint bank account belonging to your clients, * (the “Taxpayers”).

FACTS

The Taxpayers, a husband and wife, were married in April 2018. The Taxpayers have been the joint owners of a bank account (the “Account”) since May 2018. The Account was a joint general checking account into which the Taxpayers’ wages were directly deposited and from which their everyday expenses were paid.

In March 2022, a lien was executed on the Account to partially satisfy the balance due on assessments of individual income tax issued to the husband for the 2004, 2006, and 2008 taxable years. Each of the assessments had been issued well before the Taxpayers were married.

The Taxpayers do not dispute the validity of the assessments. The Taxpayers, however, contend that, to the extent funds in the Account are traceable to their joint federal tax refund for the 2021 taxable year, they are entitled to a “poor debtor’s exemption” for the amount of the refund that was attributable to the child tax credit, the additional child tax credit, and the earned income tax credit. They further contend that, because the tax liabilities at issue were assessed before their marriage, they are the sole liability of the husband and thus the wife’s share of the Account cannot be used to satisfy such liabilities.

DETERMINATION

Poor Debtor’s Exemption

The Taxpayers’ joint federal tax refund for the 2021 taxable year was attributable primarily to the child tax credit, the additional child tax credit, and the earned income tax credit. This refund was deposited in the Account in March 2022, shortly before the lien was executed.

The poor debtor’s exemption provided under Virginia Code § 34-26 9 generally exempts federal tax refunds attributable to the child tax credit, additional child tax credit, and the earned income tax credit from creditor process. Virginia Code § 34-3, however, provides that the exemptions listed under Virginia Code § 34-26 do not apply to liens for state taxes. Further, the Virginia Supreme Court has held that exempt funds that were deposited into a general joint account and comingled with other funds, as the Account indicates in this case, lost their exempt status. See Bernardini v. Central National Bank, 223 Va. 519 (1982).

Joint Account

Virginia Code § 6.2-606 A (previously Virginia Code § 6.1-125.3 A) provides that a husband and wife are presumed to own the funds in a joint account “equally.” The Supreme Court of Virginia ruled that this language creates a presumption that each spouse owned one-half of the funds in the account. As such, only one-half of the funds deposited in a joint bank account of a husband and wife were subject to garnishment by a creditor of one of the spouses. See Lewis v. House , 232 Va. 28 (1986).

It has been the Department’s policy not to hold one spouse liable for past tax liabilities of the other spouse accrued in years before a return was jointly filed. See Public Document (P.D.) 08-44 (4/17/2008). In that case, the Department determined that the taxpayer was not liable for her husband’s tax debts he had accrued before their marriage.

CONCLUSION

For the reasons discussed above, the Taxpayers could not claim the poor debtor’s exemption to protect the Account from the Department’s collections attempts. I have determined, however, that one half of the Account is presumed to belong to the wife and may not be levied to satisfy the husband’s state tax debt accrued before marriage. A refund will be issued shortly to reflect this determination.

The Code of Virginia sections and public document cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4372.X

Related Documents

08-44