Can Divorcing Save You Money in Taxes?

On behalf of Ronald H. Kauffman, P.A. posted in Divorce on Sunday, January 6, 2013.

There are many good reasons people have for getting divorce. But should you get divorced for the money saved on tax filing status? The Eleventh Hour agreement to avoid the fiscal cliff known as the American Taxpayer Relief Act of 2012, was signed into law this week and may have created a new marriage tax. The Act may make divorce a very profitable decision for couples seeking to reduce their tax exposure, whether they want to divorce or not.

As the online news magazine The Fiscal Times reports:

Meet the new George and Martha – two investment bankers who fell in love over a bottle of Barolo while students at Wharton. They were made for each other: they had the looks, the lifestyle, and the resumes that Wall Street firms bid for . . . Before long they were each making about $400,000 a year. And, thanks to the Bush-era tax cuts, they were able to keep a lot of that money and live the high life.

The new law raises taxes on couples making more than $450,000 and individuals making more than $400,000. When their accountant told them they may have to limit their deductions because of their joint incomes as well, they asked her to run the numbers and come up with an alternative. As it turns out, George and Martha would save over $27,000 a year if they divorced. And so they did. But they’re still together, in some ways closer than ever.

Think about that for a second. If a couple could save $27,000 annually on their taxes, they could take a European cruise, Colorado ski vacation, put a little cash away towards college expenses, and even have some mad money left over – every year. How, just by divorcing and staying together in a long term relationship!