Hot Topics in Family Law

Family law is constantly evolving and embraces many areas of the law other than just matrimonial litigation and issues of support, custody and equitable distribution. Domestic torts can arise from acts committed by a spouse during the marriage. These acts can give rise to a civil cause of action and compensatory and/or punitive damages. Domestic torts can include claims for alienation of affections and criminal conversation, physical abuse or domestic violence, fraud and others. Tax issues often figure prominently in a divorce and include issues of misrepresentation of income and/or deductions by one spouse which may result in additional tax, penalties and interest for both spouses, usually to the shock of the spouse who trustingly signed the tax returns as presented.

The synopses below, and those that will appear in the future on other topics are intended to educate those persons seeking to understand and know their rights and possible liabilities in the divorce arena.1

Joint Tax Returns and Innocent Spouse Relief | Alienation of Affections and Criminal Conversation

Joint Tax Returns and Innocent Spouse Relief

Most married taxpayers elect to file a joint tax return because of the benefits that this filing status allows. By filing a joint tax return, both taxpayers are jointly and individually responsible for the tax and any interest or penalty that is due on the return. Liability for the tax to the taxing agency, whether federal or state, for the tax remains, even if a divorce decree or settlement agreement states that a former spouse will not be responsible for the tax, interest, or penalties.

In certain cases, however, a spouse may be able to relieve him or herself from tax liability. In 1998, the Internal Revenue and Reform Act made it easier for an innocent spouse who signed a joint return to avoid responsibility for the total tax due to be paid to the IRS. According to Internal Revenue Code section 6015(b), an innocent spouse will be relieved of an understated tax liability on a joint return when he or she did not know or have reason to know of the understatement, and it would be inequitable to hold the spouse responsible. In order to qualify for innocent spouse relief, you must meet ALL of the following conditions.

  1. You filed a joint tax return which has an understatement of tax due to erroneous items of your spouse;
  2. You establish that at the time you signed the joint return you had no reason to know that there was an understatement of tax;
  3. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.

The IRS defines an “understatement of tax” as the difference between the total amount of tax that should have been shown on your return and the amount of tax that was actually shown on your return. “Erroneous items” may consist of either unreported income or an incorrect deduction, credit, or basis. In determining whether it is unfair to hold you responsible for the understatement, the IRS will consider whether you received any significant benefit from the understatement of tax, or whether you were divorced from or deserted by your spouse.

The IRS rejects approximately 40% of all claims for innocent spouse relief, because the party requesting the relief is ineligible. Innocent spouse relief is designed only for cases where the taxpayer underpaid or understated the tax due, not where the taxpayer paid the tax in full. The IRS will only accept requests for innocent spouse relief after a taxpayer receives a notice of audit or other notification of potential liability. The taxpayer must file the request for innocent spouse relief no later than two years after collection efforts begin. If the IRS denies the petition for relief, the taxpayer then has ninety days to petition the Tax Court.

The IRS also recognizes two other instances in which a spouse may be relieved of the tax, interest, and penalties on a joint return. These two types of relief are “separation of liability” and “equitable relief.” Relief by separation of liability allows you to divide the understatement of tax on your joint return between you and your spouse (or former spouse). The understatement of tax allocated to you will be the amount of tax for which you are responsible. In order to request relief by separation of liability you must meet the following requirements:

  1. You filed a joint return;
  2. You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief; OR
  3. You were not a member of the same household as the spouse with whom you filed the joint return at any time during the twelve-month period ending on the date you filed the Form 8857 (request for innocent spouse relief).

The IRS will not grant relief by separation of liability in certain situations. First, where the IRS proves that you and your spouse transferred assets as part of a fraudulent scheme, they will not grant you relief by separation of liability. Second, if the IRS proves that at the time you signed the joint return you had actual knowledge of any items giving rise to the deficiency that were allocable to your spouse, you will not be granted relief by separation of liability, and third, if your spouse or former spouse transferred property to you to avoid tax or the payment of tax, you will not be granted relief.

The IRS also allows a third type of relief from tax liability for spouses who do not qualify for either innocent spouse relief or relief by separation of liability. Equitable relief may be available if you meet all of the following conditions:

  1. You are not eligible for innocent spouse relief or relief by separation of liability;
  2. You and your spouse did not transfer assets to one another as part of a fraudulent scheme;
  3. Your spouse did not transfer assets to you for the main purpose of avoiding tax liability;
  4. You did not file your return with the intent to commit fraud;
  5. You did not pay the tax; and
  6. You establish that taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understatement or the underpayment of tax.

Unlike innocent spouse relief or relief by separation of liability, it is possible to obtain equitable relief from either an understatement of tax or an underpayment of tax. The IRS defines an underpayment of tax as an amount of tax that you properly reported on your tax return but that you have not paid. If you are separated or divorced from your spouse, the IRS will consider it as a positive factor in favor of you obtaining equitable relief.

For more information regarding innocent spouse relief, relief by separation of liability, or equitable relief see IRS Publication 971 entitled “Innocent Spouse Relief.” www.irs.gov

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Alienation of Affection and Criminal Conversation

It has a devastating impact when a spouse learns that her husband or his wife is involved with another person and is committing adultery. When the adulterous spouse leaves the family, the devastation is intensified. The feelings of rejection, anger, grief and humiliation as well as possible loss of financial support, illness, such as depression, and other factors are considered a personal injury in North Carolina whose public policy is against the interference of a third party in a marriage. North Carolina allows compensation in appropriate cases where third party interference has effectively destroyed the marriage.

North Carolina recognizes two causes of action that allow an injured spouse to sue for money damages based on allegations of harm to the marital relationship caused by a third party. These causes of action are for “alienation of affections” and “criminal conversation.” In order to succeed in an action for alienation of affections, the innocent spouse must prove that:

  1. A marriage existed between the plaintiff and his/or her spouse;
  2. The marriage entailed love and affection between the spouses;
  3. The love and affection was destroyed;
  4. The defendant’s malicious conduct contributed to or caused the loss of affection; and
  5. The plaintiff suffered injury and damages.

The injured spouse need not show that the defendant set out to destroy the marital relationship, nor that the defendant’s conduct was the sole cause of the loss of affection. The injured spouse just has to show that the defendant was the controlling or main cause of the loss of affection between the spouses.

Actions for alienation of affections are generally brought by the innocent spouse against the paramour of the guilty spouse, and do not require proof of adultery. In fact, telephone calls and emails may be sufficient to subject a non-resident to the jurisdiction of the North Carolina courts for purposes of a suit for alienation of affections.

Unlike alienation of affections, a cause of action for criminal conversation does require sexual intercourse between the defendant and the plaintiff’s spouse. In order to succeed on a claim for criminal conversation, the plaintiff must prove:

  1. The existence of a valid marriage between the plaintiff and the adulterous spouse;
  2. An act of sexual intercourse between the plaintiff’s spouse and the defendant; and
  3. The defendant suffered injury and was damaged.

In North Carolina, the statute of limitations for both alienation of affection and criminal conversation is three years. The statute begins to run at the time of the loss of affection, which is determined on a case by case basis.  Previously, acts between the spouse and third party that occurred after the date of separation but before absolute divorce might still in some instances give rise to a claim. However, effective October 1, 2009, a plaintiff must file a claim within three years from the earlier of (a) the date of the last act or (b) three years from the date of separation, even if the alienating behavior and/or sexual intercourse continued after the date of separation. Also effective October 1, 2009, claims may be brought against natural persons only; business entities may not be sued for these torts.

North Carolina juries have often been generous in alienation of affections and criminal conversation cases. In August 1997, a Greensboro, North Carolina jury returned a $1 million verdict against the secretary of the husband in a case for alienation of affections and criminal conversation. In that case, the husband left the marital home to live with his secretary. The husband subsequently divorced his wife and married his secretary with whom he had been living prior to his divorce. In that case, the jury awarded the wife damages based upon her loss of income, life insurance, and pension benefits, as well as, her suffering loss of consortium, mental anguish, and humiliation.

North Carolina remains among the small minority of states that recognize causes of action for alienation of affections and criminal conversation. Although the Court of Appeals attempted to judicially abolish these torts in the case of Cannon v. Miller, 71 N.C. App. 460, 322 S.E.2d 780 (1984), it was reversed by the Supreme Court. In the past neither the North Carolina legislature, nor the North Carolina Supreme Court had shown any strong interest in abolishing these causes of action. Recently, however, the North Carolina House of Representatives voted 70-46 to abolish the tort of alienation of affections. While the Senate has not yet voted to determine the fate of suits for alienation of affections, the possibility of realizing a sizeable damage award in North Carolina based upon causes of action for alienation of affections and/or criminal conversation remains. The potential size of a favorable verdict may vary depending on multiple factors including length of the marriage, the egregiousness of the defendant’s conduct and the length of time over which it has occurred, the conduct of the plaintiff during the marriage and actual damages such as medical or psychological treatment costs and loss of income in addition to humiliation and emotional harm among others. Not every case of alienation of affections or adultery will merit bringing a claim.

The usual defense to a claim of alienation of affections is that the love and affection in the marriage had been lost prior to the adulterous spouse’s involvement with the third party. This involves attacking the plaintiff’s claim of a happy marriage existing until the interference of the third party. A physical separation will not bar a claim for criminal conversation even if the sexual relations with the third party took place after the separation occurred.

 

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1DISCLAIMER: The information in “Hot Topics” is intended only as a general guide and is not to be regarded as legal advice by Gailor & Hunt, P.L.L.C. to any specific individual on any issue. Whether or not you may be entitled to take action in regard to the issues addressed in “Hot Topics” can only be determined after consultation and a thorough review of the facts and circumstances of your case.