IRS Gets "Beat" By Common-Law Marriage

November 9, 2010 | Roger McEowen

A minority of states recognize common-law marriages.  But, even in these states, it’s not enough to just simply live together for a certain amount of time.  Instead, the couple must hold themselves out to the public as married persons.  There are various ways that can be done, including using the same last names and filing joint tax returns.  Each state that recognizes common-law marriage sets forth certain tests that must be followed to establish the relationship.  In Kansas, the couple must have the capacity to marry, agree to be married and represent to the public that they are married.  The first two tests typically aren’t difficult to establish, but the third one – a public representation of the marital relationship – is more difficult.  That’s what this case concerns.  

In this case, a Kansas farmer died in 2001, leaving his entire multi-million dollar estate to his partner (Theresa Beat) who claimed she was the decedent’s common-law wife.  They had been in a “relationship” for over twenty years beginning at a time that they were both married to other persons.  She was named the executor, and claimed a 100 percent marital deduction on the decedent’s federal estate return and Kansas inheritance tax returns for the entire value of the estate.  That wiped out tax at both the federal and state levels.  But, both the IRS and the Kansas Department of Revenue (KDOR) disagreed with her characterization as the decedent’s common-law wife.  If she was not the decedent’s spouse at the time of his death, then the estate could not claim any marital deduction with the result that a substantial amount of tax would be due at both the federal and state levels – with interest and penalties. 

In 2005, the “widow” filed a motion with the county trial court, seeking a determination that she was the common-law wife of the decedent. She claimed that they had been “married” for 20 years, had a monogamous relationship and held themselves out in the community as being married.  She stated that she even wore his ring for most of the “marriage.”  There was no question that they had the capacity to marry after they each were divorced from their respective spouses and the statutory waiting period for a subsequent marriage had expired.  But, the IRS and KDOR claimed that they had substantial evidence that there was no valid common-law marriage.  Also, the KDOR pointed out that the “wife” failed to exhaust administrative remedies by prematurely filing suit with the trial court. They argued that they had primary jurisdiction to determine marital deduction issues.  The IRS also intervened and got the case removed to federal court.  There, the U.S. District Court for the District of Kansas determined that the case was properly removed and granted the IRS’ motion to dismiss for a lack of subject matter jurisdiction- meaning the court held that they did not yet have the authority to rule on the “wife’s” pre-enforcement allegations. She had not yet exhausted her administrative remedies.  Accordingly, the federal district court remanded the case to the local trial court for a determination of all other issues. 

In July 2006, the “widow” submitted 165 paragraphs of “uncontroverted facts” asserting her status as common-law wife. She also submitted a wealth of affidavits, deposition testimony and other exhibits to prove her status as a common-law wife.  The court found several “facts” compelling, including the exchange of rings.  Additionally, the decedent’s daughters referred to the “wife” as their step-mother, the community considered them a couple, the decedent referred to her as his “old-lady,” and he also identified her as “next of kin” on several important documents. The couple established a successful farming business in which they worked together every day. There was additional evidence presented indicating that the couple even went on a “honeymoon” in Hutchinson, Kansas, where the couple agreed to be common-law married at a restaurant and he “carried her over the threshold” of their motel room.  Apparently it wasn’t a memorable “honeymoon” because she couldn’t remember for sure when it occurred and that it may have occurred at a time that neither party had the capacity to marry.

The IRS and KDOR moved for dismissal of the case alleging that the couple identified themselves as “single” on several land deeds, filed separate income tax returns, and filed for social security benefits as single individuals. The decedent’s ex-wife also testified that she rarely heard her ex-husband refer to his new friend as his “wife” and that the rings were never referred to as wedding bands.  Additionally, the decedent intentionally prepared his will as a single person and indicated on his children’s application for college aid that he was unmarried. 

In a procedural determination, the trial court struck her “affidavit of uncontroverted facts” as not having been properly submitted.  On motions of the state and federal government for summary judgment, the court set forth 138 factual findings based upon their assessment of the pleadings and other evidence.  The court granted the motions, stating that the parties put “different spins on the same set of facts.”  The court stated that there were not enough “controverted” facts for the case to proceed to trial. 

The court went on to lay out the three essential elements to establish a common-law marriage in Kansas – (1) the parties must have the capacity to marry; (2) the parties must mutually agree to be presently married; and (3) the parties must mutually hold themselves out to the public as husband and wife. The trial court stated that her evidence was purely subjective and there was not enough verifiable evidence that the couple had established a common-law marriage. The court concluded that the parties did have the capacity to marry, but there was no mutual agreement to marry.  The only direct evidence of an agreement to marry was her testimony regarding the Hutchinson “honeymoon.”  However, there was no supporting evidence offered to establish that the couple really had a “present agreement” to marry.  As to the third element, the trial court found that the parties never signed any documents representing that they were a married couple.  Probably the most damaging evidence cited by the IRS and KDOR was that the decedent executed his will as a single person and refused to refer to her as his wife.  Despite his attorney’s suggestions that they formalize the marriage, the decedent indicated that he left the plaintiff with enough assets to cover any estate tax or inheritance liability.  The court went so far as to state the “widow” completely failed to prove a common-law marriage.   

On appeal, the court disagreed with the trial court’s granting of the motion for summary judgment in favor of IRS and KDOR. They found that there was a “considerable amount of evidence” that should have been weighed by the judge or via a jury trial.  In essence, the appellate court held that the determination of the existence of a common-law marriage was a fact question to be determined by a jury.  One of these “problems” with the trial court’s determination was that there was (according to the appellate court) ample evidence to suggest that the couple held themselves out as a married couple. The court went on to state that even though a couple never tells any member of his or her family or the public that they are actually married, that does not necessarily preclude a common-law marriage in Kansas.  The court believed that there were other factual indications that the couple held themselves out to the public as husband and wife. 

Finally, the appellate court determined that the trial court improperly weighed the evidence in favor of the KDOR and IRS.  The appellate court determined that the trial court utilized “objective” evidence and, as such, improperly “weighed” the evidence during the summary judgment motions.  A weighing of the evidence by the court should only have taken place during a trial.  A grant of summary judgment generally means that there is not enough evidence to be weighed or that a plaintiff’s arguments are unsound or lack merit. Thus, the Kansas Court of Appeals ruled that this case should not have been decided by summary judgment and should have proceeded to a trial.  On remand, the sole issue before the state trial court was whether the couple had established a common-law marriage.  The matter of an estate tax refund was not ripe because the decedent’s estate had not yet filed a claim for refund.

On the later tax refund action back in federal court, the court was unimpressed by the “widow’s” arguments.  Indeed, the court noted that a rational fact-finder could conclude that no common-law marriage existed and that the evidence supporting a common-law marriage was so lacking that her estate tax refund claim could be considered fraudulent.  The court noted that the decedent and the “widow” went to great lengths to conceal their relationship from family and neighbors.  The court also determined that the doctrine of consistency should be applied – for over two decades they represented themselves to the IRS on their federal tax returns that they were not married, and now she shouldn’t be allowed to claim “spouse” status for purposes of minimizing and/or eliminating tax.  Accordingly, the court denied her motion for a refund of estate tax based on the marital deduction.  

But, at a later trial in the federal court on the issue of whether a common-law marriage existed, the jury determined that it had been established.  The IRS had claimed that she owed $1.4 million in estate tax, another $1 million for fraud and $434,000 in interest.  Since she had to pay those amounts to challenge the assessment in federal court, she’ll get those amounts back if the jury decision holds up.  The judge could take overturn the jury’s decision, and/or the case could be appealed.  Stay tuned.  In re Marriage of Dyche, No. 97,639, 2008 Kan. Unpub. LEXIS 508 (Kan. Ct. App. Aug. 8, 2008);related proceeding at Beat v. United States, No. 08-1267-JTM, 2010 U.S. Dist. LEXIS 87787 (D. Kan. Aug. 25, 2010).