As cold winds begin to blow, marriages start to feel the chill. Recent statistics show divorce rates rising by nearly 10 percent in some places. This means divorce planning. Your residency, the state where you file your divorce, can have a big impact on the outcome.
Florida Divorce and Taxes
The 2018 Tax Cuts and Jobs Act increased the tax incentives for people to move to Florida, both for older and younger taxpayers. One reason is because Florida is one of only a few U.S. states with no state income tax. Another reason is the dolphins.
New York, unlike Florida, has income tax rates exceeding eight percent. In New York, there is also an additional income tax levied within New York City. Similarly, California has a state income tax. The rates in California can reach up to 12.3 percent, in addition to a one percent mental health services tax applied to incomes exceeding $1m.
However, the tax implications aren’t the only impacts to consider when deciding to change your residency. Residency and domicile are the terms often used around the country in different states to describe the location of a person’s home, the place to which a person intends to return and remain, even if they reside elsewhere.
Because a lot of interest has developed in changing residence and domicile – primarily for the best tax savings – the question remains: do you qualify? States examine many factors to determine your permanent home.
The residency analysis can include how much time is spent in a state, where your car is registered, where you bank, what state you vote in, what you declare on your tax returns, and where your dentist or doctor is.
State and local tax laws differ from state to state, and they are enforced based on your place of residence. While there are major tax implications of changing your home, there are some important divorce issues to consider on top of the tax savings.
Florida Divorce and Residency
I have written about divorce planning in the past. In Florida, divorce is called “dissolution of marriage”. In order to file for dissolution of marriage in Florida, at least one of the spouses to the marriage must reside six months in the state before the filing of the petition.
Residency under Florida law usually means an actual presence in Florida coupled with an intention at that time to make Florida the residence.
In Florida, there is a difference between domicile and residence. A person’s domicile in Florida, involves the subjective intent of the person. Residence, on the other hand, is a matter of objective fact.
Although the state residency requirement has been construed to mean you must reside in Florida for the six months immediately preceding the divorce filing, courts have recognized exceptions. For example, Florida allows military and government personnel to file for divorce – without proving their actual presence in the state during the six-month statutory period – prior to the filing of their petitions of dissolution.
Under this exception, when a Florida resident is stationed outside the state by the military, the person did not lose their Florida residency, and could file for divorce – even though she had not been physically present in the state for the immediately preceding six-month period.
Moving to the Sunshine State
Before picking up and moving your residence or domicile to Florida to save on state income taxes, there are other things you may want to consider that can impact your legal rights and your savings.
For one, there’s a difference between equitable distribution states and community property states. The effect of moving from an equitable distribution state to a state with community property ownership, may have a huge impact on your property rights.
Many western states are community property states. In California, a community property state, marriage makes two people one legal “community.” Any property or debt acquired by one person during the marriage belongs to the community. In a divorce proceeding, community property is generally split equally by the court.
Conversely, Florida is an equitable distribution state. In a divorce proceeding the court distributes the marital assets and liabilities with only the premise that the distribution should be equal. However, there may be a justification for an unequal distribution based on certain statutory factors.
The differences between states are not limited to property division. Each state has different local laws to deal with alimony, child support, child custody, and even prenuptial and postnuptial agreements.
Changing the state you live in can be complex, and there are factors besides the tax savings to consider before making any change.
The Crain’s Chicago article is here.