Joint and several liability between spouses in tax law "So examine him who is eternally bound..."

1. Anna and Daniel - A practical example

Anna and Daniel have been married for several years. They are both gainfully employed. Anna works in a reduced workload as an employee in a service company. Daniel is a self-employed craftsman. Daniel takes care of the taxes among other things. Anna is glad that she does not have to deal with these complicated forms, but only has to sign them once a year where Daniel shows her. One day Daniel asks Anna to pay the recently received provisional tax bill for the cantonal and municipal taxes, as she has savings after all. He says he is currently in a small financial bottleneck, as a client has not yet paid a larger invoice. Anna agrees and thinks nothing of it, even though they have always shared the tax costs. After some time, Daniel tells Anna that his one-man business is not doing so well anymore. Anna increases her workload and both hope that Daniel's business will recover. As a result, Anna takes over many costs, including tax costs. She hopes to be able to relieve Daniel's burden. However, the financial situation of the spouses deteriorates further and their marriage breaks up. They decide to separate. One day Anna receives the final invoice from the tax office for a previous tax year. During the year in question, she and Daniel were still living in an unseparated marriage. She cannot pay the high bill and finds that Daniel should actually pay the bill, as she had already taken over a considerable part of the taxes at that time through her advance payment. Daniel refuses. In the meantime he has filed for bankruptcy for his business.

Can the tax office hold Anna liable for the full amount of tax?

2. liability in the case of a genuinely unseparated marriage - principle

2.1 Regulation at the level of direct federal tax

2.1.1 Legal basis

According to Art. 13 para. 1 of the Federal Law on Direct Federal Tax (DBG), spouses who live in legally and factually unseparated marriage are in principle jointly and severally liable for the total tax. This applies analogously to registered partners.01

The joint and several liability covers both provisionally invoiced taxes and all outstanding tax debts incurred during the period of the unseparated marriage. As the creditor, the competent tax authority is free to decide whether to claim the amount in full or in part from one spouse instead of both spouses. In this way, it can sue the spouse who is more capable due to the declared financial circumstances.02

2.1.2 History of origins

The Federal Council's dispatch on the introduction of the Tax Harmonisation Act and the Federal Direct Federal Tax Act provided for new procedural and liability rules for spouses.03 In determining liability, the Federal Council based its decision on the new marriage law, which was also passed during this period and which in principle established the individual liability of spouses for their own debts. Similarly, under the new Art. 13 para. 1 DBG, spouses who live in legally and factually unseparated marriages should only be liable for their respective share of the total tax. It was only in parliamentary discussions that the proposal to introduce joint and several liability of spouses in tax law was taken up and finally implemented in the existing wording. The main reason given for this was the practicability, as spouses would be assessed jointly.04 If there were now no joint and several liability, tax invoices would have to be correctly issued for each spouse individually in order to be enforceable. Such a solution would only be practicable if the spouses were assessed separately.05

The discussion on the harmonisation of tax laws on family versus individual taxation is no less topical today and remains controversial. From the speeches made in the National Council at the time, it can be seen that the main aim was to protect the financially weaker party. For this reason, the principle that spouses are jointly and severally liable was abolished,

• if one spouse becomes insolvent (see explanations under 2.2.1 Regulation at the level of direct federal tax) and
• for outstanding tax invoices if the spouses separate (see explanations under 2.3 Liability in the case of actually separated marriage - regulation in the DBG).

2.2 Regulation at cantonal level

2.2.1 Regulation in the majority of cantons

The Federal Act on the Harmonisation of Direct Taxes of the Cantons and Municipalities (StHG) does not contain a provision on joint and several liability like the DBG. The cantons can therefore provide for a separate liability regime for the spouses.06

Most cantons have adopted the wording of Art. 13 para. 1 DBG for spouses living in legally and factually unseparated marriage. Only the cantons of Lucerne and Basel-Stadt have different rules (see below).

2.2.2 Canton of Lucerne

Spouses living in legally and factually unseparated marriage in the Canton of Lucerne are in principle also jointly liable for the total tax. According to Section 20 (2) of the Tax Act (StG LU), joint and several liability does not apply if one spouse can prove that certain parts of income and assets are attributable to the other spouse. In this case, the person is liable for a maximum of twice the amount of tax due on their income and assets.07 Irrespective of the creditworthiness of the other spouse, a spouse may therefore obtain a ruling in the Canton of Lucerne determining the portion of his or her income and assets, the tax payable thereon and the maximum amount for which he or she is liable. The prerequisite for this is that he or she can provide the necessary proof regarding the income and assets of the other spouse.

2.2.3 Canton of Basel City

The canton of Basel-Stadt has embarked on its own path. According to § 9 para. 2 of the Direct Tax Act (StG BS), spouses who live in legally and factually unseparated marriage are only liable for their share of the total tax. In this case, joint and several liability does not apply in its entirety. This very welcome solution shows that proportional liability is possible even if spouses are assessed jointly.

2.2.4 Meaning for Anna and Daniel

With reference to the facts described at the beginning, this means that, except in the canton of Basel-Stadt, Anna and Daniel are jointly and severally liable for the total tax as long as they live in an unseparated marriage. In the Canton of Lucerne, joint and several liability can be limited as described.

3. liability in the event of actually unseparated marriage - insolvency of one spouse

3.1 Regulation at the level of direct federal tax

3.1.1 Legal basis

Only if one spouse is insolvent does joint and several liability cease to apply pursuant to Art. 13 para. 1 sentence 2 DBG. In this case, each spouse is only liable for that part of the total tax that relates to his or her income factors. According to the Federal Supreme Court's case law, a spouse is deemed to be insolvent if loss certificates exist, bankruptcy has been declared or a composition agreement with assignment of assets has been concluded. A spouse is also considered to be insolvent if there are other conclusive indications that he or she is unable to meet his or her financial obligations for an indefinite period of time. A short-term financial bottleneck is not sufficient.08 A financial hardship is not permanent if the destitution is due to the fact that one spouse has transferred his or her assets to the other spouse or to other family members. This destitution can be remedied in a simple way, namely by repatriating the funds.09

3.1.2 Implementation in practice

If one spouse becomes insolvent, joint and several liability ceases to apply. However, this is not taken into account ex officio.10 In this respect, the Federal Supreme Court has already distinguished between federal and cantonal law.11 Accordingly, joint and several liability at federal level is no longer applicable by law on the basis of Art. 13 para. 1 sentence 2 DBG. At the cantonal level - in the cited case it concerned the Canton of Zurich - an application for a declaration of insolvency must be submitted. This distinction is not understandable with regard to the provision in the Canton of Zurich, as Art. 13 para. 1 sentence 2 DBG and Art. 12 para. 1 sentence 2 StG ZH are identical. The case law referred to by the Federal Supreme Court in the quoted decision of 15 June 2020 concerned legal cases in the Canton of Vaud, where the law does not provide for the cancellation of joint and several liability (see below for details).

It is recommended that the spouse, who usually wants to waive joint and several liability due to the insolvency of the other, becomes active and requests the relevant tax office to waive joint and several liability due to insolvency. This is a tax-reducing fact, which must be proven by the taxpayer.12

Since the solvent spouse is the subject of a complaint, he or she must prove the insolvency of the other.13 According to the Federal Supreme Court, it is also possible that the insolvent spouse himself/herself applies for the annulment of joint and several liability, as the tax authorities can then only sue him/her for the part of the tax liability that is lower than the total tax liability of the spouses.14 The reasons given by the Federal Supreme Court in the aforementioned decision are not convincing. Normally, the tax authority in question will hold the solvent spouse liable for payment. The latter thus bears the risk of having to assume the other spouse's share of the total debt "à-fonds-perdu". If the tax authority only demands the tax claim from the non-paying spouse, the latter can take recourse to the solvent spouse in an internal relationship.15 Consequently, he or she is not subject to a complaint.

It is controversial in the doctrine whether the determination of the insolvency of a spouse can already be made in the assessment procedure or only in the subscription procedure.16 It is understandable that the insolvency is only determined in the reference procedure by means of a contestable liability order. The liability order is a definitive legal opening title within the meaning of Art. 80 SchKG, which means that debt enforcement can be enforced.17 In the assessment procedure, the question of the payment obligation does not yet arise.

3.1.3 Meaning for Anna and Daniel

On the level of direct federal tax, Anna can obtain a liability order in the circumstances described in the introduction if Daniel is already no longer solvent during the undivided marriage. In this case, the joint and several liability is not applicable. Both Anna and Daniel are only liable for the taxes incurred on their tax factors.

3.2 Regulation at cantonal level

3.2.1 Regulation in the majority of cantons

Most cantons also provide for joint and several liability to lapse in the event of the insolvency of one spouse. Only the cantons of Appenzell Innerrhoden (Art. 16 Tax Act AI), Appenzell Ausserrhoden (Art. 15 Tax Act AR) and Vaud (Art. 14 Loi sur les impôts directs cantonaux) do not provide for a corresponding exclusion of joint and several liability. With regard to the cantons of Lucerne and Basel-Stadt, reference is made to the above explanations.

3.2.2 Regulation in the cantons of Appenzell Ausserrhoden, Appenzell Innerrhoden and Vaud

The Federal Supreme Court has examined whether the regulation of the Canton of Appenzell Ausserrhoden on the joint and several liability of spouses violates the derogatory force of federal law. In other words, whether the cantonal legislator has enacted a provision in an area that has already been conclusively regulated by federal civil law. Cantons may only enact public-law provisions in an area if federal legislation is not conclusive in this respect and if the canton does not make the application of federal civil law impossible, excessively difficult or contrary to the spirit and purpose of federal civil law by its own provision.18

Federal civil law contains liability provisions in matrimonial law and basically provides for individual liability. It is therefore questionable whether the cantonal legislator is at all allowed to provide its own regulation in the area of tax law. Since the federal legislator itself already provides for a limitation of this fundamental individual liability of spouses in civil law in tax law with Art. 13 DBG, the cantonal legislator does not, however, violate the derogatory power of federal law according to the Federal Supreme Court when it enacts a norm in tax law on the joint and several liability of spouses. Furthermore, the cantons are free to formulate a corresponding provision, as the Swiss Federal Tax Act does not contain any provision on the joint and several liability of spouses.19

In a further decision by the Federal Supreme Court on the regulation of the canton of Vaud, it was stated that the cantonal liability provision does not violate any federal law, although it goes further than the DBG with regard to joint and several liability in the event of the insolvency of a spouse. Even if the removal of joint and several liability is preferable in such cases, a stricter cantonal regulation is not arbitrary for that reason alone.20

The provisions of the Cantons of Appenzell Innerrhoden, Appenzell Ausserrhoden and Vaud do not violate superior law according to the Federal Supreme Court's case law. This applies even though civil law provides for the individual liability of each spouse and joint and several liability under the DBG can be waived in the event of the insolvency of one spouse.21 This jurisprudence may be correct from a legal point of view, as the cantons have regulatory competence due to the lack of a corresponding provision in the StHG. Nevertheless, the cantonal provisions should not go any further than Art. 13 para. 1 DBG. As explained above, joint and several liability has already led to discussions during the parliamentary debate on the harmonisation of federal legislation. Parliament finally agreed that the financially weaker spouse should be protected by law if joint and several liability is introduced. Bearing in mind that in reality the financially weaker spouse can usually only defend himself or herself poorly or not at all, it would be more than desirable for cantonal laws to adopt the wording of the DBG.

3.2.3 Meaning for Anna and Daniel

For Anna and Daniel this means: In most cantons, the joint and several liability does not apply, analogous to the direct federal tax, if Daniel becomes insolvent during the undivided marriage and Anna obtains a liability order. If Anna and Daniel have lived in the Cantons of Appenzell Innerrhoden, Appenzell Ausserrhoden or Vaud during their unseparated marriage, the joint and several liability remains in force despite Daniel's insolvency. In this case, Anna may be required to pay the entire joint tax debt - also by way of debt enforcement proceedings.

4. liability in the event of actual separation

4.1 Regulation at the level of direct federal tax

4.1.1 Legal basis

In accordance with Art. 13 para. 2 DBG, joint and several liability in the event of legally or factually separated marriage does not apply to all outstanding tax debts. Spouses who are legally or factually separated are thus only liable for their share of the total tax, even if the tax claim arose before the legal or factual separation. The share of each spouse must be determined by means of a contestable liability ruling.22

This clear rule that joint and several liability is also abolished for outstanding tax debts should avoid hardship cases. In the aforementioned parliamentary debate on the harmonisation of tax laws, Art. 13 para. 2 DBG was in fact submitted as a motion during the negotiations and was accepted by both chambers without dispute. The purpose of this provision was to clarify the retroactive cancellation of joint and several liability, which, according to the comments made in the parliamentary debate, was actually taken for granted.23

4.1.2 Provisional tax invoices already paid

It is questionable how to deal with a provisional tax payment settled by one spouse before the separation.

• Is such a payment to be credited only against that spouse's share?
• What is the procedure for a possible refund?
• Is it to be made exclusively to this spouse or proportionately to both spouses?

Various models have been developed in teaching and practice. For example, it is postulated that the provisional taxes paid by a spouse during the unseparated marriage are credited to his or her share of the total debt after separation. Another view is that the tax provisionally paid by one spouse during the unseparated marriage is credited half each to the shares of both spouses after the separation. A third possibility is to credit the tax provisionally paid by one spouse to both spouses in proportion to the amount of their shares.24

Since joint and several liability at the level of direct federal tax is eliminated with the actual separation, even for outstanding tax liabilities, the first model is preferable. Consequently, any repayment should also be made to this spouse. If the competent tax authority chooses one of the two other options, it must be ensured that the spouse who made the payment receives compensation for it in the divorce proceedings or that the payment is credited against the maintenance payments in favour of the other spouse. The spouse who made the advance payment should endeavour to obtain a liability order.25

In individual cases, it can be difficult for the spouse who made the advance payment to recover the portion of the overpaid taxes to which he or she is entitled, despite recourse rights in the internal relationship and agreements in the event of divorce. It would be welcome if the subscription procedure described here as the first model were applied as standard.

4.2 Regulation at cantonal level

4.2.1 Regulation in the majority of cantons

Most cantons have adopted the wording of Art. 13 para. 2 DBG. As a result, joint and several liability in these cantons at the level of cantonal and municipal taxes with the legal or actual separation of marriage is also eliminated for all outstanding tax claims.26

4.2.2 Regulation in the cantons of Appenzell Innerrhoden, Appenzell Ausserrhoden, Grisons, Lucerne, Neuchâtel, Nidwalden, St. Gallen, Solothurn, Vaud and Zurich

In some cantons, joint and several liability remains for the outstanding tax debts incurred during the unseparated marriage.27 However, only the wording of the law in the cantons of Appenzell Ausserrhoden and Appenzell Innerrhoden is unambiguous, as it expressly states that joint and several liability remains in force for outstanding tax bills.

The laws of the other cantons (Grisons, Lucerne, Neuchâtel, Nidwalden, St. Gallen, Solothurn, Vaud and Zurich) state that spouses who are not separated are jointly and severally liable for the total tax.28 The same provisions apply to joint and several liability as long as there is a common tax liability. With the exception of the cantons of Appenzell Inner- and Ausserrhoden, there is no mention of whether joint and several liability continues to exist after the actual separation of the couple for outstanding tax claims. This open wording could be interpreted to mean that joint and several liability for outstanding tax claims ceases to exist with the separation. However, implementation in practice and the relevant case law show that joint and several liability for outstanding tax claims from the period of unseparated marriage remains in force in these cantons after the actual separation of the couple.29

In reality, this leads to hardship cases, as one spouse may in fact have to bear a higher tax burden than that corresponding to his or her economic capacity. This usually affects the spouse who is already economically worse off. In most cases, this is the wife who, for various reasons, is not in a position or position to defend herself. Even though the cantons have autonomy in structuring the liability of spouses in tax law, it is disturbing that this extensive joint and several liability creates hardship cases that were not intended by the federal legislature.

4.2.3 Meaning for Anna and Daniel

In the case of Anna and Daniel, this may mean that Anna may also be required to pay all outstanding tax amounts in respect of cantonal and municipal taxes by way of debt enforcement measures (attachment of wages) if Anna and Daniel lived in one of the cantons listed in footnote 32 during their unseparated marriage. Anna must then try to obtain compensation from Daniel herself.

4.2.5 Provisional tax invoices already paid

As with joint and several liability in the event of separation at federal level, the question also arises at cantonal and municipal level as to how to treat advance payments to settle the total tax burden of a spouse during an unseparated marriage. Pursuant to § 180 para. 1 of the Tax Act of the Canton of Zurich (StG ZH), the Canton of Zurich provides that, as a rule, advance payments are repaid half to each of the two spouses.30 The legislator assumes that the spouses have also paid half of the tax liability. If this is not the case, it is up to the taxpayer to send the tax authorities a different agreement before the tax is refunded. If such an agreement is not received by the tax authorities until after a tax refund, it will only be taken into account for subsequent tax refunds. Pursuant to Section 180(2) of the Tax Code of Civil Procedure, a tax credit may also be set off against other provisional or definitive invoices relating to both spouses jointly or each of them individually.31

As already mentioned above, the reimbursement should be made by default to the spouse who has provided evidence of the advance payment. Although half the amount is understandable from an administrative and economic point of view, it is unlikely to be appropriate in many cases.32

5. liability for child income/assets

Both the DBG and the cantonal tax laws provide for joint and several liability of the spouses, who live in legally and factually unseparated marriage, for that part of the total tax that is attributable to the children's income and assets.33 This joint and several liability for the child's income and assets remains in force with regard to outstanding tax bills in the event of separation.34 For tax claims arising after the separation, the person who has parental custody or, in the case of joint custody, custody of the child, is regularly liable.35 Children under parental custody are also jointly and severally liable for the total tax due on their share of income and assets in accordance with the DBG and cantonal tax laws.

6. conclusion

With regard to the liability of spouses for tax debts incurred during marriage, the quotation from Friedrich Schiller's poem "Das Lied von der Glocke": "Drum prüfen, wer sich ewig bindet, (...)" prima vista may contain a certain amount of truth. But in real life it is usually impossible to predict what will or can happen later.

In order to avoid the conclusion that "the madness is short, the regret is long" in the event of a marriage separation with regard to existing tax debts, it would be desirable for the cantons to at least adapt their laws to the wording of the DBG.36 it would be desirable for the cantons to at least adapt their laws to the wording of the DTA. This would eliminate joint and several liability in the event of the insolvency of one spouse and, at the latest, at the time of a judicial or de facto separation, also for outstanding tax debts. The optimal solution would be the proportional liability of each spouse, as envisaged by the Canton of Basel-Stadt. This solution will probably only be feasible if spouses are assessed separately at federal and cantonal level.