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 Rev. Rul. 68-66

1968-1 C.B. 33

Sec. 61

IRS Headnote

When for all intents and purposes a marriage has been terminated in the State of Washington, but not legally dissolved, and the spouses show by affirmative action their intent not to maintain the community status, no portion of the earnings of the husband is includible in the gross income of the wife where she has not received any of such earnings.

Full Text

Rev. Rul. 68-66

Advice has been requested whether a taxpayer in the State of Washington, a community property state, is required to include in her gross income one-half of the earnings of her spouse where she has not received any of these earnings during a period of separation prior to the granting of a final decree of divorce.

During a period of separation, but prior to the granting of a final decree of divorce in a community property state, a spouse is generally taxable on one-half of the other spouse's earnings unless the parties enter into a valid property settlement agreement in which they release their interest in each other's future earnings, or they show by clear and convincing evidence the existence of an agreement, either written or oral, that the future earnings of each are to be his or her separate property.

State courts of Washington have held that when for all intents and purposes a marriage has been terminated and the spouses show by affirmative action their intent not to maintain the community status, then the community property laws will not be applied to the spouses. Rustad v. Rustad , 61 Wash.2d 176, 377 P.2d 414 (1963); MacKenzie v. Sellner , 58 Wash.2d 101, 361 P.2d 165 (1961); In re: Janssen's Estate , 56 Wash.2d 150, 351 P.2d 510 (1960); In re: Armstrong's Estate , 33 Wash.2d 118, 204 P.2d 500 (1949); Togliatti v. Robertson , 29 Wash.2d 844, 190 P.2d 575 (1948); Yates v. Dohring , 24 Wash.2d 877, 168 P.2d 404 ( 1946). See also Wilma Knodle v. Warren , United States District Court for the Western District of Washington, Northern Division, entered December 9, 1966. Factors which the courts have found indicative of intent not to maintain community status include: (1) spouses live separately; (2) neither spouse contributes to the support of the other nor accounts to the other for income received; (3) neither spouse asserts any claims by any income or property acquired by the other subsequent to the separation; (4) each spouse manages his or her affairs free of interference from the other spouse; (5) a complaint of divorce is filed; (6) the divorce action is uncontested; (7) a property settlement has been entered into.

The community status during periods of separation prior to divorce in the State of Washington is a factual matter to be determined in each case. In making such determinations, the Internal Revenue Service will consider the factors that the courts have taken into account. However, the separation of the spouses alone does not dissolve the community status. Kerr v. Cochran , 65 Wash.2d 211, 396 P.2d 642 (1964).

Accordingly, when for all intents and purposes a marriage has been terminated in the State of Washington, but not legally dissolved, and the spouses show by affirmative action their intent not to maintain the community status, no portion of the earnings of the husband is includible in the gross income of the wife where she has not received any of such earnings.