Divorce for tax reasons in NYS?

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CountryBoy
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Divorce for tax reasons in NYS?

Post by CountryBoy »

I am 70, retired, live in New York State, and live on my Social Security income and small pension. My wife works and has some years to go before retiring.

For the record, our marriage is not just wonderful but the best thing that ever happened to me. However, the tax situation both in the present and in the future in NYS suggests that divorce could be very practical.

Note: Alternative Minimum Tax (AMT), automatically puts married couples in a higher tax bracket than their similarly salaried single counterparts.

Do people out there have experience or expertise in the wisdom of divorcing so as to cut back on taxes? My wife and I would both continue to live in the same house and she would still keep my name.

Note, I have checked Google on this but have not found any good sources.

Thank you.

Country Boy
xerty24
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Post by xerty24 »

Run the numbers for your last years taxes as if you filed singlely - that should give you a good idea of how much marriage penalty applies in your situation (if any).

I would note that if you care about taxes, moving out of NYS is also worth considering.
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CountryBoy
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Post by CountryBoy »

STAR: School Tax Relief

New York State's School Tax Relief (STAR) Program provides property tax exemptions (also known as homestead exemptions) for New York homeowners. Basic STAR is available to anyone who owns and lives in his or her own home and earns less than $500,000. Enhanced STAR is available to senior homeowners whose incomes do not exceed $79,050.
It is my understanding that this program will be sun setting or ending soon.

cb
Manbaerpig
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Post by Manbaerpig »

perfectly logical, but terribly sad

also I wonder if the IRS would just throw a common-law marriage suit against you making the whole ordeal pointless. Unless you'd have to start ACTING like you're divorced, getting seperate residences, etc.
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norookie
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Post by norookie »

xerty24 wrote:Run the numbers for your last years taxes as if you filed singlely - that should give you a good idea of how much marriage penalty applies in your situation (if any).

I would note that if you care about taxes, moving out of NYS is also worth considering.
:D X2. I applaud your thinking CBoy. You know the .gov is only here to help. Help its self to your money if you let it that is! :wink:
" Wealth usually leads to excess " Cicero 55 b.c
AlohaJoe
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Post by AlohaJoe »

Manbaerpig wrote:also I wonder if the IRS would just throw a common-law marriage suit against you making the whole ordeal pointless. Unless you'd have to start ACTING like you're divorced, getting seperate residences, etc.
The IRS recognizes you are "married" if the state you live in considers you "common law married" (Pub 17). New York State has no such notion, so this wouldn't be a concern.
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pjstack
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Post by pjstack »

This seems like a scheme fraught with unintended consequences.

(I'm surprised the AMT applies to you with social security and a "small" pension.)

You are not going to get younger or healthier, so do you now have your "ex" wife on a power of attorney for health care (so she can at least visit you when you're in the hospital)? Financial power of attorney, also?

How about your house? Vehicle(s)? Are you going to change your will? Do you have a will?

Have you talked to a lawyer? Have you talked to a tax guy?

I can't imagine that this scheme could possibly be worth the effort to pull off, but you certainly need to talk to a tax guy and a lawyer not to jokers on the internet.
pjstack
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interplanetjanet
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Post by interplanetjanet »

I would be very careful about any issues that could affect you if one of you is injured, starts suffering from dementia, has an extended hospital visit, etc. A medical power of attorney and living will should cover a lot of bases...but I still wonder if "she's my wife" or "he's my husband" might count for more if something goes really badly - if one of you has little time to live due to something happening and the other needs to get to their bedside *now*.

I would probably see a lawyer who specializes in these sorts of issues to try to draw up a set of documents and make you aware of any pitfalls there may be. If you've already done this then good luck.

-Janet
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CountryBoy
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Post by CountryBoy »

Yes, I will talk to a tax guy on this but I just wanted to do some research by way of preparation.

Strange that Google has so very little to offer on this particular aspect.

cb
isaidit
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Post by isaidit »

interplanetjanet wrote:I would be very careful about any issues that could affect you if one of you is injured, starts suffering from dementia, has an extended hospital visit, etc. A medical power of attorney and living will should cover a lot of bases...but I still wonder if "she's my wife" or "he's my husband" might count for more if something goes really badly - if one of you has little time to live due to something happening and the other needs to get to their bedside *now*.

I would probably see a lawyer who specializes in these sorts of issues to try to draw up a set of documents and make you aware of any pitfalls there may be. If you've already done this then good luck.

-Janet
If you're old, both live in the same home, and have the same last name, then nobody at the hospital is going question the validity of your marriage, much less ask to look at a marriage license. You should definitely get the DPOA's just to be on the safe side though.
supersharpie
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Post by supersharpie »

CountryBoy wrote:Yes, I will talk to a tax guy on this but I just wanted to do some research by way of preparation.

Strange that Google has so very little to offer on this particular aspect.

cb
Have you been married for more than 10 years?
MarcVH
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Post by MarcVH »

There's plenty of stuff if you just Google for "sham divorce" although much of it is about things like attempts to conceal assets or trigger pension transfers or the like.

I'd be more concerned about things other than taxes -- Social Security, pensions, joint property, wills, and so on. If you have any relatives who are the least bit unethical I would be very careful here.
jmbkb4
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Post by jmbkb4 »

xerty24 wrote:
I would note that if you care about taxes, moving out of NYS is also worth considering.

Exactly. Come to the midwest and escape the mess and future mess that is NY state.
Chuck
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Post by Chuck »

As a fellow NY resident, moving out of NY is my number one retirement goal. :)
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dm200
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Post by dm200 »

I am showing my age, but I recall a comedy bit about how to get a divorce in NY State. Back then, the only grounds for divorce in NY State were "adultery" (or someting like that). One guy was giving instructions to a friend that, to get a divorce, you hired a photgrapher, a call girl, and have the photographer take a picture of the two of you in bed naked together. That was divorce, NY style.
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CountryBoy
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Post by CountryBoy »

1-
supersharpie
Have you been married for more than 10 years?
We have been married for 25 years.

2-Google
The citations I come up with do not specifically address this question.
cb
yobria
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Post by yobria »

CountryBoy wrote:Strange that Google has so very little to offer on this particular aspect.
Probably because most couples facing this issue just didn't get married in the first place (I know quite a few, usually the issue is similar incomes increasing the tax bill).

Nick
stan1
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Post by stan1 »

What does your wife think of this idea?
datadiva
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Post by datadiva »

I will second Janet's concern. There are other consequences to not being married (both financial and legal) that need to be reviewed. Regardless if you have the same name, you cannot necessarily make health decisions for the person.
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CountryBoy
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Post by CountryBoy »

stan1
What does your wife think of this idea?
My wife introduced me to the Boglehead forum and also suggested the topic for me to research.
smackboy1
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Re: Divorce for tax reasons in NYS?

Post by smackboy1 »

CountryBoy wrote:Do people out there have experience or expertise in the wisdom of divorcing so as to cut back on taxes? My wife and I would both continue to live in the same house and she would still keep my name.
Marital status for the whole tax year is determined by your status on the last day of the year, December 31. I don't know if it was a myth but I recall being told that some exotic island locales would offer tax specials for couples so they would take a X'mas vacation at the end of the year and get divorced in the foreign jurisdiction before Dec 31, and then get re-married a few days later after the new year. Not sure what the IRS thought of this, I can't find anything online either, but I would not want to be standing in front of a Federal judge trying to explain away a charge of "intent to commit fraud" after doing this for a few years.

My advice is to discuss this with a CPA and lawyer before getting a divorce to avoid unintended consequences. There are a lot of tax benefits for married couples e.g. unlimited marital deduction for gift/estate taxes.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.
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