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Stathopoulos v. Stathopoulos

Superior Court of Connecticut
Jul 5, 2018
FSTCV166029605S (Conn. Super. Ct. Jul. 5, 2018)

Opinion

FSTCV166029605S

07-05-2018

Georgia STATHOPOULOS v. Maria STATHOPOULOS


UNPUBLISHED OPINION

OPINION

POVODATOR, J.

This matter is before the court as an appeal from probate. The plaintiff/petitioner is challenging a ruling/order from the Probate Court relating to the proper treatment of certain funds. The issues in this case require/required a probate-based consideration if not determination of a family-law issue, with an overlay of application of federal tax law principles.

The facts generally are not in dispute, and the court will rely upon the Probate Court recitation of the background facts.

The decedent and his former spouse, Maria Stathopoulos ("Maria"), were divorced on July 3, 2013. On the day before their divorce was finalized (July 2, 2013), they entered into a Separation Agreement (the "Agreement"). Article VI of the Agreement provides for a property settlement in the amount of $1,000,000, with $500,000 payable to the former wife thirty days from the date of dissolution of marriage, and, $50,000 per year for ten years on each anniversary date of the dissolution. The Agreement further provides that if the husband dies prior to the end of the ten-year period, an additional amount of $250,000 shall be paid to his former wife. Article VI, Paragraph 6.2 of the Agreement provides that if the husband dies during the ten-year term of the property distribution, "the Wife shall have a preferred debt claim against the Husband’s estate for the balance of any unpaid property distribution, which claim shall be paid in full by the Estate within eighteen (18) months of the date of the Husband’s death." Prior to his death, the decedent paid Maria $555,000. The balance payable to Maria pursuant to the Agreement is $695,000.
The decedent and Maria filed joint federal and state income tax returns for years 2010, 2011, and 2012. The preparer of those forms erroneously did not take deductions for certain deductible expenses incurred by the decedent’s businesses. Before the decedent died, new accountants filed amended returns for those years which were signed by the decedent and Maria. The decedent’s estate received seven federal income tax refund checks from the Internal Revenue [Service]. The Executrix delivered the checks that had not expired, totaling $31,936.46, to Maria.
The Executrix, through counsel, seeks the Court’s determination that the refund checks, while they were in the name of the decedent and Maria, belong to the decedent’s estate and therefore, having been paid to Maria, reduce the amount the estate owes to her by $31,936.46. On the other hand, Maria, through counsel, seeks the Court’s determination that at least one-half of the refund checks belong to her and that at least $15,968.23 should not offset the amount the decedent’s estate owes her.
The decedent and Maria were married and filed joint income tax returns for 2010, 2011, and 2012. The Agreement between them addresses those returns: "Any liability, including interest and penalties, due on any previously filed joint tax returns shall be paid by the party whose income or deductions caused the liability." The Executrix maintains that one should infer that refunds would be paid to the party whose income or deductions caused the liability. Maria maintains that while she did not have employment during the marriage, in essence, her responsibilities as wife and mother, caring for the couple’s three children and maintaining the home, enabled her husband to be successful in his business career. The Agreement is silent as to tax refunds.

The Probate Court determined that half of the tax refund properly was characterized as estate property and therefore treated as a credit against the outstanding amounts due to the respondent. The Probate Court determined that the other half, however, should be characterized as Maria’s in the first instance, such that the estate was not to be credited for that amount as a payment towards the indebtedness to the respondent.

The petitioner has challenged the determination of the Probate Court that half of the refunded funds should be characterized as belonging to respondent such that the estate would get no credit for that half of the funds resulting from the corrected tax returns. The respondent, of course, believes that the Probate Court correctly characterized the funds. This court is charged with making a determination on a de novo basis. The parties have stipulated to the record properly before the court. (No testimony was offered.)

The petitioner presents the issues in the following manner:

1. Whose Tax Refund is it? IRS Requires any Overpayment of Tax to be Refunded only to Taxpayer Responsible for Creating the Overpayment.
2. Absent a Finding of Fraud, the Court has no Jurisdiction to Reopen the Dissolution Judgment.
3. Under Connecticut Law, the Post-Dissolution Tax Refunds Should Not be Considered Marital Property Subject to Equitable Distribution.
4. Since the Court has No Jurisdiction to Reopen the Division of Property, We Must Look to Separation Agreement.

The respondent has framed the issues in a different (but substantially overlapping) manner:

1. Should the Court consider DeMatteo v. DeMatteo, 21 Conn.App. 582, 575 A.2d 243, cert. denied, 216 Conn. 802, 577 A.2d 715 (1990) as the controlling law in this case or can it be distinguished upon the facts of this case?
2. Does the Estate of Peter Stathopoulos qualify for an Injured Spouse Allocation pursuant to Internal Revenue Regulations as promulgated on IRS Form 8379?
3. Should the refund amounts be considered as marital assets that were unknown to the parties at the time of dissolution and subject to the statutory scheme of equitable distribution of assets?

A number of these issues, as identified by the parties, can be addressed- dismissed- relatively summarily. The starting point is the limited scope of authority of this court, in connection with a probate appeal.

In a probate appeal ... the Superior Court’s jurisdiction is statutory and limited to the order appealed from. The issues presented for review are those defined in the reasons of appeal. The Superior Court cannot consider or adjudicate issues beyond the scope of those proper for determination by the order or decree attacked. This is so even with the consent of the parties to the appeal because the court has subject matter jurisdiction limited only to the order or decree appealed from [The Superior Court] tries the questions presented to it de novo, but in so doing it is ... exercising a special and limited jurisdiction conferred on it by the statute authorizing appeals from probate. (Internal quotation marks and citations, omitted.) Eder’s Appeal from Probate, 177 Conn.App. 163, 168-69, 171 A.3d 506, 509 (2017).

Thus, while the Superior Court generally/presumptively is a court of general jurisdiction, in connection with probate appeals of this nature, the court is limited by the statutory jurisdiction of a Probate Court, Ramsdell v. Union Trust Co., 202 Conn. 57, 72-73, 519 A.2d 1185, 1193 (1987) ("The trial court correctly acknowledged, however, that its jurisdiction was limited to that conferred on the Probate Court ..."). As a consequence, issues that otherwise might be within the jurisdiction of the court- if it were sitting as a court of general jurisdiction- are beyond the jurisdiction of the court when sitting as a Probate Court, as reflected in the conclusion of the sentence quoted from Ramsdell ("... and that the plaintiffs’ claims for money damages and equitable relief against the defendant should be brought in a court of general, rather than limited, jurisdiction").

Therefore, when the petitioner states, as an issue, "Absent a Finding of Fraud, the Court has no Jurisdiction to Reopen the Dissolution Judgment," the predicate appears to be superfluous. In the context of this proceeding, the court lacks jurisdiction to open the dissolution judgment even if there were a claim (or evidence) of fraud. That is not to say that the court might not be able to consider issues that might, in another context, warrant opening the judgment in the process of addressing the issues before it, but the court, sitting as a Probate Court, does not have any identified authority to open and modify a judgment rendered by the Superior Court sitting as a court of general jurisdiction.

That leads to an issue not raised by the parties. From opposite perspectives, both parties invoke the equitable distribution of marital assets. The petitioner states the issue in the negative ("Under Connecticut Law, the Post-Dissolution Tax Refunds Should Not be Considered Marital Property Subject to Equitable Distribution") and the respondent frames it as a positive proposition/question ("Should the refund amounts be considered as marital assets that were unknown to the parties at the time of dissolution and subject to the statutory scheme of equitable distribution of assets?").

Implicitly, the parties have made an assumption of significant legal consequence. Although the court, sitting as a Probate Court, has authority to make equitable determinations that are essential to determinations properly within the jurisdiction of the Probate Court, does that extend to equitable distributions of marital assets, as may be required in this case? Certainly the court has the authority to determine whether assets are property within the jurisdiction of the Probate Court- property belonging to the estate. By negative implication, the court can determine that property is not estate property. But to the extent that there might be a claim that some indeterminate portion of the tax refund comes within the scope of estate property, and assuming no clear benchmark (such as a formula set forth in the separation agreement or dissolution judgment), does the Probate Court have the authority to make an equitable distribution as between ex-husband and ex-wife? Or. have the parties effectively (by implication) agreed that an equitable distribution would be on a 50-50 basis, such that the Probate Court does not need to make any decision as to percentages?

The Probate Court order/decision at issue does not discuss (in explicit terms) how or why there was a conclusion that there should be a division of the refund on a 50-50 basis. There is no indication that that was the result of a balancing of the equities, or reliance on some presumption of equal division either as a starting point or otherwise. The court did note that the respondent had contributed to the marriage in a non-monetary way, but did not identify any balancing of that fact against other factors that might need to be considered in an equitable distribution context.

The parties have not raised any such issue, and the Probate Court also did not identify any concern about limits on the ability of the court to adjudicate the issues presented (to the extent necessary). Therefore, having identified a possible concern, the court will continue to address the merits of the dispute.

Also subject to relatively summary disposition is the claim that the petitioner is entitled to the proceeds as a matter of Injured Spouse Allocation under the Internal Revenue regulations applicable to such a situation. This case does not come within the scope of the regulation, as there is no attempt by the IRS to apply a refund due one spouse against a liability of the other spouse. To the extent that the petitioner is relying on the underlying rationale for the rule rather than the explicit provisions themselves, that is but a particularized instance of the more general proposition relied upon by the petitioner, in his first point- that even with respect to joint returns, the IRS deems a refund as going to the individual taxpayer who paid the (presumptive) tax- the taxpayer whose earnings underlie that tax- that is now being refunded as an overpayment. The court does not perceive Injured Spouse Allocation to be an independent basis for any decision in this dispute.

The parties and the Probate Court recognized the potential significance of DeMatteo to the outcome of this case, and the Probate Court agreed with the respondent that the case was distinguishable. Although the facts differ in some respects, this court does not agree that the differences in facts warrant a difference in outcome.

The court’s analysis of the petitioner’s claims, with emphasis on the reliance on DeMatteo, is set forth in a single comprehensive paragraph:

First, the facts in DeMatteo are distinguishable from the instant case. That case involved the plaintiff’s request in a divorce matter to have the trial court compel the defendant, his former spouse, to endorse IRS refund checks to him. The instant case, however, involves the Executrix of the estate, acting on behalf of the beneficiaries of the estate, not the spouse himself, attempting to secure IRS checks from the surviving spouse. Furthermore, as the Court in DeMatteo pointed out, prior to signing the separation agreement, the parties owed a substantial tax deficiency to the IRS and both were well aware of the obligation since the plaintiff’s financial affidavit revealed contingent liabilities to the IRS of over one million dollars and the plaintiff was already under IRS examination. With that potential liability involved it was understandable that no refund was anticipated by the parties and hence, no provision made for a division thereof in their Separation Agreement. In the instant case however, although Mr. Stathopoulos’s new accountants filed, during the divorce proceedings, the amended returns to reclaim an over payment of taxes during the marriage the checks currently at issue arrived at least one full year after the decedent’s death, therefore the claim for the checks is on behalf of beneficiaries, not by the wage earner himself. Furthermore, counsel for the Respondent rightfully points out that although the surviving spouse may not have had income which was taxable, her contributions to the decedent while alive, namely, taking care of the residence and children, clearly did allow the decedent to pursue full time his business interests and therefore directly benefitted both parties financially. Finally, the overpayment made by the decedent and the Respondent represents an overpayment of income and assets which was rightfully part of the marital estate and therefore is subject to an equitable and fair distribution.

The court does not find the initial distinction- the former spouse in DeMatteo seeking sole entitlement to the funds whereas here it is a representative of an estate (the Executrix)- to have a material bearing on the outcome.

The issue of timing of liability and payments is of potentially greater significance. In DeMatteo, the payment of tax deficiencies occurred after the dissolution, although the parties were aware of the potential liability at the time of the divorce and execution of the separation agreement. Here, there were no known liabilities, and the payments had been made prior to the marriage dissolution. In both cases, the person whose earnings generated the liability and the later refund/repayment claimed entitlement to the full proceeds, and in both cases, the non-earner had sought protection- via explicit provisions in the separation agreement- from any potential responsibility for future tax liability in connection with the marriage dissolution proceedings (separation agreement).

The more detailed recitation of background facts in DeMatteo (21 Conn.App. 584) indicates that prior to the agreement and divorce, both parties had executed a promissory note to the IRS, and that supplemental payments were made after the divorce.

Although the timing of payments may represent a distinction tending to support the respondent, the timing and nature of IRS interactions tend to support the petitioner’s position. In DeMatteo, the issue of potential tax liability was prominent, and it is hardly surprising in such circumstances that the focus of attention on the part of the defendant wife had been to seek protection against future liability; lack of attention to any possible refunds would be far from surprising. Here, however, there were no known tax liability issues, yet the respondent sought protection from liability as a precautionary matter, without any attention to the possibility of a refund. Unlike DeMatteo in which case all of the attention was on tax liability (deficiencies), here the subject of a possible refund was not purely hypothetical. As recited in the probate decision as a factual matter: "In the instant case however, although Mr. Stathopoulos’s new accountants filed, during the divorce proceedings, the amended returns to reclaim an over payment of taxes during the marriage the checks currently at issue arrived at least one full year after the decedent’s death." (The respondent had signed the amended tax returns, prior to their being filed.)

In DeMatteo, the trial court had been required to interpret the intentions of the parties notwithstanding the absence of any express reference to the possibility of a refund, in turn in the absence of any reason to anticipate a refund; 21 Conn.App. 585. Here, the respondent took steps to ensure protection against a hypothetical tax liability but took no steps to address a foreseeable if not likely refund, relying exclusively on a property settlement based on fixed lump sum payments.

Essentially all of the remaining discussion in the paragraph quoted above from the probate decision relates to somewhat general equitable considerations:

Furthermore, counsel for the Respondent rightfully points out that although the surviving spouse may not have had income which was taxable, her contributions to the decedent while alive, namely, taking care of the residence and children, clearly did allow the decedent to pursue full time his business interests and therefore directly benefitted both parties financially. Finally, the overpayment made by the decedent and the Respondent represents an overpayment of income and assets which was rightfully part of the marital estate and therefore is subject to an equitable and fair distribution.

In so focusing on equitable principles, the court did not note that the parties- especially, the respondent- had negotiated for a fixed sum distribution rather than a calculated percentage or relying on the family court to make a determination of what was fair and equitable. More importantly, the Probate Court did not address the arguments of the petitioner that the applicable IRS regulations and protocols treat the refund as belonging to the taxpayer whose income resulted in the payment of taxes which were subsequently determined to have been overpaid and therefore entitled to a refund. (See Ex. O to # 112.00.) The IRS issues joint checks because it cannot determine, in every case, which joint filer is entitled to what proportion (if any) of a refund, but nonetheless deems the refund payable to the taxpayer who overpaid in an individual sense, regardless of joint filing status. Absent an equitable determination that that designation should be overridden, the petitioner is the proper owner of the funds being returned (if belatedly). As in DeMatteo, there has been no evidence submitted potentially creating an issue as to whether the earner’s spouse was entitled to a share of the refund based on her status as an actual payer of a portion of the tax being refunded.

Indeed, the court believes that there has been excessive focus on the facts and actual outcome of DeMatteo, in turn leading to a somewhat myopic focus on whether the facts are sufficiently distinct as to conclude that the decision is not determinative here. Although the court believes the facts are sufficiently similar to warrant giving the decision persuasive weight, the court believes the proper significance of the decision is the framework. There, as here, the separation agreement did not address, explicitly, disposition of a post-dissolution tax refund. The court did not treat the disposition of the refund as a matter of equitable distribution of marital property, but instead focused on ownership rights to the money and the intent of the parties as could be inferred from the separation agreement which had been incorporated into the dissolution judgment. Necessarily implied by DeMatteo is that only if an ownership analysis could not provide an answer, and only if an attempt to apply the inferred intent of the parties in entering their separation agreement could not provide an answer, might there be recourse to other avenues of analysis- such as the equitable distribution of marital property. Equitable distribution was not reached in DeMatteo and the court believes that it should not be reached here.

As already noted, the respondent has not refuted or rebutted the petitioner’s reliance on IRS regulations treating the refund- at least presumptively- as belonging to the taxpayer whose earnings generated the tax being refunded. Focusing instead on the separation agreement as incorporated into the dissolution judgment, the court, sitting as a Probate Court, must interpret and apply the settlement agreement (as adopted by the trial court in dissolving the marriage) to the extent that it is the sole authoritative repository of the agreement of the parties and the orders of the court relating to distribution of property. The agreement of the parties was that each would keep his/her own identified assets (as reflected on their respective financial affidavits) and that in lieu of any redistribution of assets, the petitioner’s decedent would be obligated to make substantial payments in cash to the respondent. There was no explicit formula based on value, but rather a sum certain, with conditions and provisos. Neither party (as far as the record before this court indicates) identified a possible tax refund as an asset or receivable and there does not appear to be any basis for the court to conclude that the mutual omission was anything other than innocent, and the respondent cannot claim not to have had at least general knowledge of the existence of the potential refund.

While the actual sum that would be refunded may not have been known (although the amount being claimed likely would have been shown on the forms), the respondent having signed the appropriate forms was on notice that refunds were being sought. Additionally, in light of the obligation of the petitioner’s decedent to pay $1 million (or more, given the extra $250,000 payment that became due upon his death) to the respondent, there also is a question as to whether a receivable of approximately $30,000 could have had a material impact on the terms of the settlement agreement.

Given the structure of payments due from the decedent to the respondent, and the inclusion of a provision exonerating the respondent from any possible tax liability, the court can only conclude that the intent of the parties was that they intended there to be finality and closure on any aspect of equitable distribution of property and inter-party liabilities, including tax issues. In this sense, DeMatteo is persuasive in terms of evaluating the intent of the parties, with the added weight of actual knowledge of a possible tax refund.

While not an absolutely necessary corollary of the provision relating to tax liability, this interpretation of the agreement avoids the possibility of irrational results. If the IRS had processed the corrected returns and provided refund checks promptly but subject to further review or audit, and if the respondent had been provided with half of the proceeds, what would be the outcome if the IRS were subsequently to have determined that the refund had been excessive or wholly unwarranted? The separation agreement provides that the respondent is to have no tax liability relating to income that was not attributable to her- would the petitioner be responsible for 100% of the amount to be repaid to the IRS even though half had been distributed to the petitioner (as joint marital property)?

Based on the IRS regulations treating the refund as belonging to the petitioner (as legal representative of the taxpayer whose income had generated the tax liability) and based on the court’s interpretation of the separation agreement as intending finality of the distribution of property and especially cutting off all involvement of the respondent with tax-related issues, the court must conclude that the refund belongs to the petitioner. As a necessary corollary, the court does not reach the issue of equitable distribution of marital assets, since the IRS regulations deem the refund as property of the individual taxpayer and the separation agreement intended to end all involvement of the respondent with tax-related matters. From an alternate perspective, the agreement was silent on the subject of the then-foreseen or foreseeable refund and given the substitution of fixed payments for reallocation of individual assets, the respondent’s claims against the assets of her late-ex-husband were satisfied (to be satisfied) by payment of the sums set forth in the separation agreement. With these complementary bases for determining that the refund belongs to the estate, it is unnecessary to reach the issue of equitable distribution.

Conclusion

Perhaps the most significant distinction between this case and DeMatteo is that this case arises in the context of a probate appeal, wherein the authority of the court is more circumscribed. The court also must recognize that DeMatteo did not define any new principles but rather was a case in which the trial court’s rulings, including the interpretation of the separation agreement that had been incorporated into the marriage dissolution judgment, had been determined to be within the proper discretion of the court and supported by the available evidence.

This issue did not come to the court as a declaratory action seeking an order requiring the respondent to treat the funds she has kept as a credit against the obligation created by the separation agreement and did not come to the court seeking a modification or "clarification" of the dissolution judgment with respect to treatment of an IRS refund relating to taxes paid during the marriage. Instead, this matter came to the Probate Court as an application of the petitioner for a determination that the full refund is the property of the estate such that the retention of the funds by the respondent should be treated as a credit against the amount she is owed.

Notably, the respondent’s position consistently was that she was entitled to at least half of the proceeds (although eventually there appears to have been a tempering of the claim to be limited to precisely one-half of the proceeds). If the proceeds were marital property subject to equitable distribution, the only available evidence on which a probate determination of the proper equitable allocation/proportion could be made was be the unchallenged contention that the respondent, although not an actual earner of income, contributed to the family in a non-economic but deserving manner. No legal basis has been invoked for a claim of exactly half (or any other percentage), other than perhaps an implied right (or tacit agreement) to half of marital property. This would require the court to ignore or override the existence of the separation agreement.

The respondent, in effect, is asking the court to infer a "heads I win, tails you lose" quality to the separation agreement and judgment, especially as relates to tax issues. If there were to be any adverse tax consequences attributable to her ex-husband’s income, that would be his estate’s problem. If there were to be an unexpected refund (a windfall) attributable to her ex-husband’s income, then she would be entitled to a share- at least half. And if there were a partially expected refund (still a windfall), based on corrected returns she signed before the divorce, then again, she would or should be entitled to a share- at least half- even though she took no steps to ensure a right to a portion of any proceeds that might eventually be paid, and even though she effectively waived any claim to specific property in exchange for identified lump sum payments.

The Probate Court generally has no jurisdiction over equitable claims, the sole exception being when the equitable claim is incidental to, and connected with, the settlement of a particular estate ... [T]he situation ... in which the Probate Court may exercise equitable jurisdiction must be one which arises within the framework of a matter already before it, and wherein the application of equity is but a necessary step in the direction of the final determination of the entire matter). (Internal quotation marks and citation, omitted.) Bender v. Bender, 292 Conn. 696, 707, 975 A.2d 636, 644 (2009).

The court should not resort to equity unless necessary, and as discussed above, there is no need to reach equitable distribution in this dispute.

The court has concluded that for multiple independent reasons, the full proceeds belong to the estate. The IRS regulations treat the refund as belonging to the party whose income led to the refund- the decedent. The separation agreement represented an attempt at finality with the respondent receiving a specific liquidated sum in lieu of any distribution or redistribution of assets, such that the refund would be a windfall to the respondent and beyond the contemplation of the parties.

If the court were required to address the equities relating to distribution, in turn assuming that the court were to treat the refund as marital property, the court would conclude that the refund was not and would not have been considered a material factor in connection with an agreement for a lump-sum payment of $1 million, particularly with the added obligation of $250,000 based on the timing of the death of the decedent. Respondent chose (inferentially) not to have the known-potential refund addressed explicitly in the separation agreement (even though hypothetical tax liability issues were addressed), instead agreeing to the fixed payments described above. Awarding her half of the refund would be a pure windfall to the respondent, rewarding her for what appears to have been a conscious omission.

For all of these reasons, the court concludes that the petitioner is entitled to have the full refund treated as estate property such that the respondent is required to treat the full amount of the refund which she has retained as a credit against the amounts otherwise due to her under the separation agreement/judgment.


Summaries of

Stathopoulos v. Stathopoulos

Superior Court of Connecticut
Jul 5, 2018
FSTCV166029605S (Conn. Super. Ct. Jul. 5, 2018)
Case details for

Stathopoulos v. Stathopoulos

Case Details

Full title:Georgia STATHOPOULOS v. Maria STATHOPOULOS

Court:Superior Court of Connecticut

Date published: Jul 5, 2018

Citations

FSTCV166029605S (Conn. Super. Ct. Jul. 5, 2018)