Thanks for getting back to me. This is a highly complicated area, especially when you are from an equitable (non-community property state).
If you and your accountant call the irs at(NNN) NNN-NNNN select option 1 and option 5, you can ask for the "complicated law" division to discuss insolvency for the form 982. But these guys are on a clear the phone time line and not all sides of the issue always get discussed. They will tell you that if you file a joint return, that you have to include all assets, even if they would otherwise be excluded. They would generally be correct.
They will also tell you if your wife separately owned the (business) property on which she received the 1099-C, and you filed a separate return, that you would be able to separate out the assets.
Regarding bankruptcy: the IRS generally follows the state rules for separate bankruptcies, and so forth, but they deviate when it comes to showing solvency if you file a joint return. BUT the IRS also follows the state marital laws for marital property such as the community property laws. But application is inconsistent,and the IRS reserves the right to use their discretion.
When ever you get two or three experts together, you can get variation on how they interpret the facts. I based my comments and answers on a combination of IRS publication and IRC, case law, and FL community property laws.
But note, even if one follows the IRS publications on a subject exactly, the courts have interpreted teh code on which the pubs are based differently. This has prompted one judge to state that we "use the IRS publications at our own peril".
It is Florida and federal bankruptcy laws that exclude the joint accounts during an individual bankruptcy. BUT you should have had a choice to include one or the other.
If your accountant is a CPA he should know the codes.
But here are a few.
Section 108 of the code http://www.taxalmanac.org/index.php/Sec._108
IRS Publication 4681: http://www.irs.gov/publications/p4681/ch01.html#d0e665
IRS Publication 555, Community Property: http://www.irs.gov/pub/irs-pdf/p555.pdf
Relief From Community Property: http://www.irs.gov/irm/part25/ch11s05.html
Sections of FL law on marital and separate property: http://www.flsenate.gov/statutes/index.cfm?App_mode=Display_Statute&URL=Ch0061/ch0061.htm
Case law considered
Note, I had one I used that included treatment of jointly he,held assets. Cannot find it now. The Internet is suddenly filled with international entries on the same subject. It will take a while for me to find it again.
The botXXXXX XXXXXne here though is that our interaction does not constitute a client relationship. If you have a retained accountant or CPA, then that person has to be comfortable with how he conducts his practice. Second opinions are good because they help to explore all sides of an issue. We learn a lot along the way. But it is your accountant or CPA who will be standing with you if you are audited.
If you file a joint return, and the IRS notices that you are dividing joint assets, it will be a red flag, that will cause them to scrutinize state laws and I.R.C. They could disallow the determination or refigure it for you.
FYI: for a discussiioin of mutated property http://www.dianafriedman.com/CM/Articles/MaritalProperty.pdf