Can the TP's IRA value be excluded from Spouse insolvency worksheet for AZ?

[AZ-Tax]

Can the TP's IRA value be excluded from Spouse's insolvency worksheet for AZ? Spouse received 1099-C in her name only. If she was to complete an insolvency worksheet w/o TP's IRA FMV asset, she would be insolvent but can she exclude TP's IRA since both reside in AZ a community property state? If so she may be able to take advantage of filing MFS and having the debt excluded from income to extent of her being insolvent.

[TXEA]

This kind of gets in the legal end of things; however, I believe that if the debt was incurred during the marriage in a community property state (I am in Texas) then each spouse is liable. There may be circumstances where this is not the case, so best to consult an attorney.

As for MFS, I think she would still have to include 1/2 of all community assets and all of any separate property on her insolvency worksheet.

The debt being in her name only would not absolve her of having to consider her half of the marital assets. In Texas, I am fairly certain that an IRA is community property (contributed to from earnings).

This is not much help, I know, but maybe it can generate some discussion.

[AZ-Tax]

Tax Research used CCH and this is the results.

I used tax research thru my National Society of Accountants (NSA) membership and they replied based on CCH, IRA's are separate property, even in a community property state. I also posted this same post on the NSA website and only 1 reply which is extremely low which tells me most practitioners don't want to touch this. The 1 reply was based on who the beneficiary of the IRA is but upon reading the CCH research NSA emailed me, beneficiary seems to have no bearing.

[Gary2]

When I first saw this question, my immediate reaction was to search the web for "IRA Community Property", but the results were contradictory. Reading into them just a little, I think they might be saying that withdrawals from IRAs are separate income, but the IRAs themselves may be community property. It's possible that the real question to ask is whether the creditor of one spouse can attach the IRA of the other spouse to settle the debt. Or perhaps that's not the right question, I don't know.

In any event, I'm not sure I'd agree with the response you received, but I do agree with your "most practitioners don't want to touch this" conclusion. You might try the new taxprotalk.com forums (which replace Intuit's TaxAlmanac). Who knows, you might get an answer from Dave Fogel, who's written some of the best articles on cancellation of debt, and who practices in CA, and presumably familiar with community property issues.

[TXEA]

A cursory review of various sources I use for Texas Community Property Laws indicates that "IRA's are generally community property".......I think I would ask your client to get a legal opinion for Arizona prior to proceeding. This question is not a tax question, and I would have to ask a Texas attorney if this came up for a client of mine.