On behalf of Ronald H. Kauffman, P.A. posted in Divorce on Friday, May 31, 2013.

Being married comes with joys, sacrifices, tax penalties and . . . wait, tax penalties?

The marriage penalty is the situation where a married couple pays higher income taxes than they would have paid if they were un-married and filed individual tax returns. Should you divorce to avoid this penalty?

The new American Taxpayer Relief Act of 2012 sort of reduced the marriage penalty by making permanent the Bush-era expanded standard deduction and the expanded 15% bracket for joint filers.

But for high income earners, the new law raises taxes on couples making more than $450,000 and individuals making more than $400,000. As it turns out, some couples are discovering they could save over $25,000 a year if they divorced.

Think about that for a second. If a couple could save over $25,000 a year on their taxes, they could take a Celebrity Cruise to Italy, ski Deer Valley, put a little cash away towards Penn, and still have some mad money to spend just by divorcing and turning their marriage into a long term relationship.

There are a lot of risks though, known and unknown. I would encourage anyone – before they even thought about speaking to their spouses – to think about a few things:

  • The impact on your relationship. I don’t know of a good way to ask for a divorce: “Honey, I want a divorce. No, no wait, come back, it’s to save big bucks . . . really!”
  • There is no fake divorce. Once the court signs the final judgment of divorce, you are divorced. Once you’re divorced, your Ex may find someone who thinks marriage is more valuable than 5% adjusted gross income.
  • IRS rules regarding your filing status have something to say. IRS publication 504 warns that if you obtain a divorce just to file as unmarried with the intent to remarry the next tax year, you have to file as married individuals.
  • State law. All no-fault states have minimum requirements for getting a divorce. Florida, for instance, requires at a minimum that your marriage be irretrievably broken before you can get a divorce.

In addition, there are estate planning issues, retirement and social security complications, and many other issues besides the mere tax savings.

Most people who marry do so forever, and with the sincere intention of honoring their vows. Is the money worth it?

It's only fair to share...Tweet about this on Twitter
Twitter
Share on Facebook
Facebook
Share on Google+
Google+
Share on LinkedIn
Linkedin