Most attorneys include a provision in a settlement agreement for the disposition of a tax refund paid after the agreement is signed by parties to a matrimonial action. The normal options include one party keeping the entirety of the refund, the parties equally dividing the refund or the parties dividing the refund in proportion to their respective incomes during the tax year at issue. However, issues can arise with regard to tax refunds received due to a business operating loss, especially when a party applies a post-divorce loss retroactively to the parties’ prior tax returns.Â
 In Lusk v. Lusk, 55 A.D.3d 408 (1st Dep’t 2008), the Appellate Division determined that a wife should receive 50% of tax refunds paid as the result of the amendment of the parties’ prior tax returns due to the Husband’s post-divorce business losses. The parties entered into a settlement agreement and were divorced in 2000. The parties’ settlement agreement stated that if a tax refund or credit is due for any joint tax return, such refund or credit must be equally divided by the parties. In 2002, Mr. Lusk incurred a significant net operating loss and had the option of offsetting the loss against future gains over the next 20 years or amending a prior tax return to apply the loss retroactively. Mr. Lusk decided to carry back the net operating loss and amended the parties’ joint 1997 income tax return without informing his former wife. As a result of the amendment, the IRS issued a tax refund in the amount of $1.3 million. Because the IRS must notify both parties to a tax return when a refund check is issued, Ms. Lusk learned that the check had been mailed to Mr. Lusk. Mr. Lusk deposited the check without endorsement into his separate account and Ms. Lusk filed a motion seeking 50% of the refund pursuant to the parties’ settlement agreement. Due to the language contained in the parties’ settlement agreement, Ms. Lusk’s motion was successful in the trial court and thereafter affirmed by the Appellate Division.
