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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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I received a 1099-C form for $20K (a business credit card settlement,

Customer Question

I received a 1099-C form for $20K (a business credit card settlement, under my name only). At the time of settlement I had no personal assets and $120K of liabilities (on my name alone). But my wife had some cash in her checking account, around $150K in 401K plan, and we own almost paid off house. We are in Texas. Can I claim insolvency under Texas Community Property law?
Submitted: 7 years ago.
Category: Tax
Expert:  Jon Andrews replied 7 years ago.

At the very least you would need to do an analysis of your community half of assets/debts to see whether you (individually) qualify as insolvent. Much will depend on the value of the house. Clearly her 401k is community property IF it was earned during the marriage. To the extent that some or all of it existed prior to marriage, that part would be her separate property. Unless she signed the credit document OR you used her income/assets to establish the credit amount, it is likely that you can exclude her community half as well as any of her separate property in determining the insolvency question.



Customer: replied 7 years ago.

I don't see how it depends on the value of our house.


If under community property law half of my personal liabilities belongs to her, leaving me liable for $60K only, and half of her 401K is my asset ($75K), it clearly means that I can't claim insolvency. Am I right?


Expert:  Jon Andrews replied 7 years ago.

It is impossible for me to say with absolute assurance because I may not know all of the facts and circumstances. However, it is possible that because the $120k debt is in your name alone that it would go completely on your side community property laws notwithstanding. I have seen many cases where one spouse is not held liable (in a divorce or similar situation) when they did not participate, i.e. sign the documents, in procuring the debt. so, potentially, you have $120k debt, $75 community interest in her 401k (assuming that it is 100% community property), and then your share of the net value of the house. That is why I said it could depend on the value of the house.


Just so you understand, I do live and practice in Texas and I have fairly extensive experience in the application of community property laws in domestic situations. I can't say for sure how your situation would be handled but I am not just making things up either. I think there is a potential for you to exclude this income - it may or may not work out that way.



Customer: replied 7 years ago.
How much would you charge me for a private professional advice if you know all facts, circumstances and correct numbers?
Expert:  Jon Andrews replied 7 years ago.

Unfortunately, the site operator does not allow for that circumstance. Your best bet would be to make some phone calls and find someone that can help. You might call a faimly law attorney and ask for a CPA reference - the attorneys should know who in your area is qualified.



Customer: replied 7 years ago.


I'll be very specific this time and detailed -

House equity - $120K, my wife's 401K - $150K, cars value - $20K, I have $6K in my IRA

She also has $30K in checking account as a result of the car accident settlement in 2007 (we still have a copy of the check from the insurance company), and I hope that is her money and not the community property (***).

Debts: $148K to banks and credit cards plus $11K of my business related personal debts (not documented but friends-creditors can confirm) she doesn't know anything about. Personal debts were taken to cover my payments to banks and credit cards. All debts are on my name only, my DBA business related and I didn't use her income to establish the credit amount (****).
Plus we have $6K of the student loan

Assets (120+150+20+6) / 2 = $148,000
Liabilities 148 + 11 + 6/2 = $162,000

If the statements (***) and (****) are correct I can exclude $14,000 of the 1099-C amount from our income (filing joint return). Could you please confirm that?