Even Central Asia Isn’t Far Enough Away to Avoid California Residency Rules: Two Recent Cases on Married Couples with Separate Residency



The Cases

Two recent court decisions have reemphasized how difficult it can be for a nonresident with a California spouse to avoid California income tax. Difficult, but not impossible.

Why The Cases Are Important

The opinions were issued by California’s Office of Tax Appeals, the state’s new administrative tribunal for determining tax appeals. Though nonprecedential (meaning they cannot be cited in future cases), the decisions are important because they are the first cases involving the issue of married couples with separate residency heard by the OTA since it took over appellate responsibility from the State Board of Equalization in 2018. As such, the cases offer some insight into how to plan for separate residency situations.

The first case, In the Matter of the Appeal of Hyginus Offor, OTA Case No. 18011264, affirms the longstanding and often misunderstood rule that while married couples can have separate residency, their income remains reportable community income unless the nonresident spouse also changes domicile from California or maintains out-of-state domicile. The decision starkly illustrates how domicile and residency are related, if legally distinct concepts; and sometimes both have to be managed to avoid California income taxes for spouses planning to have separate residency status.

What Happened

In Offor, the taxpayer was a California resident, along with his wife and children, until he took a job in Delaware. The Franchise Tax Board, California’s tax enforcement agency, conceded that the taxpayer changed his residency to Delaware, while his family remained in California. Indeed, the taxpayer was able to successfully invoke the safe harbor provisions of Ca. Rev. & Tax. Code section 17014(d), showing that he moved to Delaware under an employment contract with a term of over 18 months and didn’t return to California during the taxable year for more than 45 days. This meant that, as a matter of law, the taxpayer was a nonresident.

Normally, that would suffice to avoid California income taxes for a person working out of state. But, as the case shows, nonresidency status for one spouse doesn’t guarantee that result when the other spouse resides in California. Under those circumstances, domicile and community property rules may kick in, to the taxpayer’s detriment and often surprise.

Specifically, the taxpayer in Offor could not provide sufficient evidence showing that, residency aside, he also changed his domicile from California to Delaware. Accordingly, the OTA ruled that half his income earned from employment in Delaware belonged to his wife, the resident spouse, reportable and taxable on her resident California tax return. Like many nonresident spouses, the taxpayer in Offor didn’t see that coming.

What It Means

Why this result? Married couples have a right to separate residency status. One spouse can be a California resident while the other acquires or maintains residency in another state. However, this rule doesn’t necessarily mean the nonresident spouse’s income is free from California income tax. On the contrary, because California is a community property state, all income earned by a spouse while domiciled in California is generally community property. (Cal. Fam. Code, § 760.). The result is, generally, half of a nonresident spouse’s income is subject to California income taxes, because it is deemed to be the income of the resident spouse, even though the spouse that earned it is a nonresident.

Domicile vs. Residency

The case demonstrates the importance of the legal concept of domicile in residency tax planning for spouses with separate residency. This begs the question: What is domicile and how does it differ from residency?

California defines a “resident” as every individual who is in this state for other than a temporary or transitory purpose, and every individual domiciled in this state who is outside the state for a temporary or transitory purpose. “Domicile” is defined as the location where a person has the most settled and permanent connection, and the place to which a person intends to return when absent. An individual who is domiciled in California and leaves California, retains his or her California domicile so long as there is a definite intention of returning to California, regardless of the length of time or the reasons for being absent from California. To change domicile, a taxpayer must actually move to another tax jurisdiction and intend to remain there permanently or indefinitely. In short, the plan must be to never come back.

As an intellectual proposition, the distinction seems dubious, if not nonsensical. To change residency requires moving to another jurisdiction with a purpose that is “other than temporary or transitory”. Most people would equate that with being permanent or indefinite. But most people aren’t lawyers. There is, in fact, a rough legal logic here. It’s possible to leave California for a purpose that satisfied the requirements of changing residency, while still intending to return to California at some point. That’s because, as used in residency law, temporary or transitory doesn’t mean the opposite of forever. Rather it refers to relatively limited purposes, such as vacations, short-term employment, specific activities like signing contracts or medical treatment or narrow educational training. For instance, if a resident moves to another state hoping to make enough money to retire in California, the purpose is “other than temporary or transitory”: it might take years to accomplish. Such a plan satisfies the rules for changing residency. But, since the specific intent is to return to California, even after a long period of time, it would not result in a domicile change.

Significantly, the burden is on California domiciliaries to show change of domicile. Once a taxpayer establishes California domicile, the presumption is it will continue unless the taxpayer can provide sufficient evidence showing a change of domicile. What constitutes the standard for sufficient evidence is discussed below in the context of the Offor ruling. But needless to say, the FTB doesn’t just ask you what your intent is. It looks at all the facts and circumstances of the case to determine motive.

Manes law pull quote Money and property talk in residency matters. If a taxpayer is willing to truly maintain two households, the court cannot ignore the impact of that on domicile intent

Many of the same factors used to prove change of residency apply to proving change of domicile. However, when married couples have separate residency, a particularly strong showing is required to establish that the nonresident spouse has no intention of returning to California. The reason is obvious: The FTB assumes most married couples live together, even if they spend time apart – or they get divorced. Whether that assumption makes sense in all cases, especially for couples who are mobile and have the means to maintain two households, we can leave to philosophy or divorce attorneys. It is, however, how the FTB operates, and the OTA has followed suit.

Critical Facts in Offor

Circling back to the Offor case, the nonresident spouse was unable to convince the court that he had changed his California domicile, even though the FTB conceded, and the court acknowledged, the husband was a nonresident who had taken a permanent job in Delaware. Since the taxpayer qualified for the safe harbor provisions of 17014(d), it means he spent no more than 45 days in California in the year at issue. However, the court emphasized that having a “marital abode” in California (that is, the home where the spouse resides) constitutes strong evidence of the nonresident spouse’s intent to return to California. Since by definition a resident spouse living in California will always have an abode, this reasoning suggests just how difficult it is for a nonresident spouse to overcome the domicile presumption. The court mentions that the nonresident spouse had “lodgings” in Delaware, but it’s unclear whether the taxpayer actually purchased a home in Delaware. The opinion suggests he was only renting. The decision may have turned out differently if he had purchased a home comparable to his “marital abode” in California.

Standard Of Proof

Tellingly, the Offor court argued that these facts did not “clearly show” a change of domicile. The standard used in non-fraud civil tax cases in California is typically the preponderance of the evidence, which is the lowest trial standard, essentially requiring only a “more likely than not” showing. In contrast, the phrase “clearly show” suggests the court was invoking a higher standard of proof: the clear and convincing standard. If so, the court is probably wrong. While the seminal domicile case of Whitmore v. Commissioner (1955) 25, T.C. 293, cited in the opinion, stated a party could only prove a change of domicile has taken place in the absence of “any doubt” to the contrary, the standard of “any doubt” has been abandoned by modern jurisprudence, and it is unclear what the Whitmore court meant by the phrase. Except for the Whitmore case’s inartful phrase (which is not supported by a citation to any prior case), there is no authority for diverging from California’s general rule that non-fraud civil tax cases require only a preponderance of the evidence to prove ultimate facts, such as the intent to change domicile. Manes Law awaits a clarification of this by the OTA in future cases.

The Kazi Appeal

The second case, In The Matter Of The Appeal Of Owais Kazi And Surwat Kazi, OTA Case No. 18042990, also involved a California resident who moved out of state while his wife and family remained. In the Kazi case, however, the taxpayer moved all the way to Pakistan and worked there for more than two years. Nonetheless, he still couldn’t escape the reach of California’s domicile and community property rules.

As in Offor, the FTB conceded that the taxpayer was a nonresident. However, the same domicile trap that ensnared the Offor taxpayer was triggered in Kazi. The court ruled that the taxpayer failed to provide sufficient evidence indicating he had changed his domicile (perhaps prudently, the Kazi court made no reference to the standard of proof for doing so, possibly aware of its unsettled state). As such, under California’s community property laws, half his income was subject to California income taxes, since that income belonged to his wife, a California resident.

Critical Facts In Kazi

Like the Offor court, the opinion focused on the fact that having a “marital abode” in California where a spouse and family lived, was strong evidence of the intent of the nonresident taxpayer to return. The court did not mention what living accommodations the taxpayer had in Pakistan, but it’s probably a good assumption that he didn’t purchase a home in Central Asia. Significantly, the court focused on the fact that the California property was owned by both husband and wife, and the husband took the homeowners property tax exemption (worth a whopping $70 on his tax bill) – an exemption which is based on a representation that the home is the primary residence of the owner.

Implications For Tax Planning In Split-Residency Marriages

The cases didn’t tell us anything we didn’t already know about the difficulty of avoiding California income taxes for residents who move out of state while a spouse remains state-bound. They did confirm the OTA will continue to scrutinize those cases closely, just as its predecessor appeals board did. Even when a taxpayer qualifies as a nonresident under the safe harbor rules of 17014(d), meaning they spend no more than 45 days in California, the problem of community property treatment, based on domicile status, looms.

That said, the cases do provide some planning guidance.

First, in both cases, the taxpayer apparently did not purchase a home in their new home state. If they had, their claim of intent to change of domicile would have been significantly bolstered. Since a “marital abode” in California plays such an important role in the decisions, countervailing evidence of a primary abode out of state would have carried weight in determining domicile. Money and property talk in residency matters. If a taxpayer is willing to truly maintain two households, the court cannot ignore the impact of that on domicile intent.

Second, in both cases, the nonresident retained title to the California residence (it’s not quite clear whether the taxpayer in Offor owned or rented in California; but if he only rented, it should have come up in the opinion). Again, the courts may have been forced to rule differently if the taxpayers had undertaken some asset planning and relinquished their interest in the property through a transfer of title solely into the California spouse’s name. In addition, by itself, this would have negated whatever weight the Kazi court put on the homeowners property tax exemption (though as a practical matter the nonresident spouse could have just canceled the exemption at any time). Of course, transferring title to a spouse shouldn’t be undertaken lightly, and for prudence sake may be best accomplished only in the context of exchanging other assets between spouses (resorting to asset transfers as part of residency planning requires due deliberation to avoid having the tax tail wag the dog). But if enough tax savings are on the line, then asset planning may make sense to overcome the “marital abode” problem.

Third (and related to property ownership), continuing California domicile status only led to bad tax consequences in these cases because the income at stake was community. If the taxpayers had entered into a marital property agreement transmuting their income to separate property, then there would have been nothing for the FTB to tax. It’s no small matter to enter into a marital property agreement; for the agreement to be valid, it usually requires input from a family law attorney, and the terms must be fair to the spouse who is giving up a community income interest. That may entail asset exchanges, or the establishment of an irrevocable trust with an income interest to the resident spouse, or other creative asset planning. But, again, if a sufficiently large amount of taxes is at stake, then the complexity and expense of this level of planning may be worth it.

Fourth, note also that both these cases involved more than just a California spouse. They involved children. It is easier to plan for a domicile change where only a spouse is involved, since spending time together as a married couple is not dependent on residency, for those who can afford it. Separate residency and domicile is, after all, permitted by law, despite the incredulity courts consistently express about that lifestyle. As a matter of law, only individuals have residency or domicile status; there is no such thing as “marital residency” or “marital domicile status”. In contrast, if children – particularly minor children – are involved, it becomes much harder logistically to spend time with them anywhere except in California, which means the FTB is likely to assume the nonresident harbors some intent to return, based on paternal instincts and social norms.

Finally, the obvious: the cases apply only to spouses who leave California to establish nonresidency elsewhere. If a married couple are both nonresidents, and one decides to move to California, the domicile problem evaporates. In fact, in that scenario, the presumption works in the favor of the taxpayer. The FTB has the burden of proof to show the nonresident became a California domiciliary, if the FTB wants to impose  community property rules. In that situation, the FTB may rue the day the OTA seemed to have invoked a clear and convincing standard in Offor. However, a caveat exists (as always). If the home state of the nonresident is a community property state, then it isn’t necessary for the FTB to prove California domicile at all. Another basis for taxing the community income applies. Namely, the fact that a nonresident lives in a community property state means that his or her income is community (short of a prenuptial or post-marital agreement), and hence 50% is subject to California income taxes.


The cases confirm that it’s complicated for married couples with separate residency to avoid California income taxes entirely. To do so requires detailed planning on multiple levels. Even moving all the way to Pakistan might not suffice.



Manes Law is the premier law firm focusing exclusively on comprehensive, start-to-finish California residency tax planning. With over 25 years of experience, we assist a clientele of successful innovators and investors, including founders exiting startups through IPOs or M&As, professional athletes and actors, businesses moving out of state, crypto-asset traders and investors, and global citizens who are able to live, work, and retire wherever they want. Learn more about our services at our website: www.calresidencytaxattorney.com.


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