Would you get divorced for tax savings?

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Lowlim
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Would you get divorced for tax savings?

Post by Lowlim »

How much tax savings per year would make it worthwhile for you to get divorced or delay getting married?

You could stay together and live/act however you want. You could also get married or remarry anytime you want, but the tax savings would stop once you did.

Real life example:
After a full calendar year of being married, a couple I know compared their income tax liability as a married couple vs if they were both still single. They found that they owed a combined $7,000 more as married couple then they would have if they were both still single in the eyes of the IRS. Assuming they both continue to work for 40 years, could save $7,000 each year, and invested in a broad market index fund yielding 6% to 10% per year, this would amount to ~$1.08M to $3.1M for them as they head into retirement. This is a real life example and I told the couple how much they would potentially be giving up after 40 years of savings. (They are close friends so I was comfortable addressing this with them.)
Can you guess what they decided to do?
yules
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Re: Would you get divorced for tax savings?

Post by yules »

Lowlim wrote: Wed Jun 22, 2022 10:49 pm How much tax savings per year would make it worthwhile for you to get divorced or delay getting married?

You could stay together and live/act however you want. You could also get married or remarry anytime you want, but the tax savings would stop once you did.

Real life example:
After a full calendar year of being married, a couple I know compared their income tax liability as a married couple vs if they were both still single. They found that they owed a combined $7,000 more as married couple then they would have if they were both still single in the eyes of the IRS. Assuming they both continue to work for 40 years, could save $7,000 each year, and invested in a broad market index fund yielding 6% to 10% per year, this would amount to ~$1.08M to $3.1M for them as they head into retirement. This is a real life example and I told the couple how much they would potentially be giving up after 40 years of savings. (They are close friends so I was comfortable addressing this with them.)
Can you guess what they decided to do?
You shouldn’t let taxes determine how you invest nor should you let taxes determine whether you stay married. Some things in life are priceless and more meaningful than money, maybe not to you but to someone else!

On a practical level, marriage allows for visitation rights or medical stuff that “divorced to save taxes” filing status doesn’t provide, so you should think about that as well

Yules
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

yules wrote: Wed Jun 22, 2022 10:54 pm
You shouldn’t let taxes determine how you invest nor should you let taxes determine whether you stay married. Some things in life are priceless and more meaningful than money, maybe not to you but to someone else!

On a practical level, marriage allows for visitation rights or medical stuff that “divorced to save taxes” filing status doesn’t provide, so you should think about that as well

Yules
Sounds like your answer is that there is no amount of money that would lead you to get a divorce or even delay getting married. Is that right?

Can you guess what the couple decided to do?
sailaway
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Re: Would you get divorced for tax savings?

Post by sailaway »

We got married for the legal benefits, not the tax consequences.
SurferLife
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Re: Would you get divorced for tax savings?

Post by SurferLife »

Lowlim wrote: Wed Jun 22, 2022 10:49 pm How much tax savings per year would make it worthwhile for you to get divorced or delay getting married?

You could stay together and live/act however you want. You could also get married or remarry anytime you want, but the tax savings would stop once you did.

Real life example:
After a full calendar year of being married, a couple I know compared their income tax liability as a married couple vs if they were both still single. They found that they owed a combined $7,000 more as married couple then they would have if they were both still single in the eyes of the IRS. Assuming they both continue to work for 40 years, could save $7,000 each year, and invested in a broad market index fund yielding 6% to 10% per year, this would amount to ~$1.08M to $3.1M for them as they head into retirement. This is a real life example and I told the couple how much they would potentially be giving up after 40 years of savings. (They are close friends so I was comfortable addressing this with them.)
Can you guess what they decided to do?
This could really cause problems with medical coverage depending on the situation. I mean, cool, we saved 7k, but we now have to work around a whole bunch of issues that may cost us more in the long run, not to mention the inconvenience of dedicating time to those issues, especially the legal ones, whoa mamma. Honestly, it just sounds like a dumb thing to do. There's more important things in life than money.
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MoleMan1349
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Re: Would you get divorced for tax savings?

Post by MoleMan1349 »

I hope they stayed married. My wife and I got married for several reasons - financial gain (or reduced financial loss) was not one of them. In fact, my marriage saddled me with more student loan debt but this was a challenge we were ready to tackle together. As others have mentioned, the legal benefits are much more important/valuable.
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yules
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Re: Would you get divorced for tax savings?

Post by yules »

Lowlim wrote: Wed Jun 22, 2022 10:59 pm
yules wrote: Wed Jun 22, 2022 10:54 pm
You shouldn’t let taxes determine how you invest nor should you let taxes determine whether you stay married. Some things in life are priceless and more meaningful than money, maybe not to you but to someone else!

On a practical level, marriage allows for visitation rights or medical stuff that “divorced to save taxes” filing status doesn’t provide, so you should think about that as well

Yules
Sounds like your answer is that there is no amount of money that would lead you to get a divorce or even delay getting married. Is that right?

Can you guess what the couple decided to do?
Depends on the context, like if my partner’s parents hated me and gave me $100 million not to marry her, then I’d probably stay a single gal but still live with her.

But I’m saying that some people dream of a wedding their whole lives and taking this away for $7,000 a year will haunt them forever. I’m also saying that some people might think of the $7,000 a year as insurance in case one of the is incapacitated and the other needs to take over finances, have child custody (or formally adopt a child’, make medical decisions, etc without the hassle of having to provide that two random unmarried people trust each other to do so.

Yules
TropikThunder
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Re: Would you get divorced for tax savings?

Post by TropikThunder »

I’m wondering what kind of scenario results in a $7,000 tax difference.
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snackdog
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Re: Would you get divorced for tax savings?

Post by snackdog »

Most people pay less taxes once married. Cap gains on a residence is double for married couples. Your friends may need a better tax advisor.
pasadena
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Re: Would you get divorced for tax savings?

Post by pasadena »

TropikThunder wrote: Wed Jun 22, 2022 11:10 pm I’m wondering what kind of scenario results in a $7,000 tax difference.
Very high earners, apparently.

To answer OP's question, probably none, unless they got married for money. That said, this is something one may want to assess *before getting married*, if it's that important.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

yules wrote: Wed Jun 22, 2022 11:09 pm
Lowlim wrote: Wed Jun 22, 2022 10:59 pm
yules wrote: Wed Jun 22, 2022 10:54 pm
You shouldn’t let taxes determine how you invest nor should you let taxes determine whether you stay married. Some things in life are priceless and more meaningful than money, maybe not to you but to someone else!

On a practical level, marriage allows for visitation rights or medical stuff that “divorced to save taxes” filing status doesn’t provide, so you should think about that as well

Yules
Sounds like your answer is that there is no amount of money that would lead you to get a divorce or even delay getting married. Is that right?

Can you guess what the couple decided to do?
Depends on the context, like if my partner’s parents hated me and gave me $100 million not to marry her, then I’d probably stay a single gal but still live with her.

But I’m saying that some people dream of a wedding their whole lives and taking this away for $7,000 a year will haunt them forever. I’m also saying that some people might think of the $7,000 a year as insurance in case one of the is incapacitated and the other needs to take over finances, have child custody (or formally adopt a child’, make medical decisions, etc without the hassle of having to provide that two random unmarried people trust each other to do so.

Yules
So you do have a price :wink:

You could still have your dream wedding. The only thing different would be that you don't sign a state marriage form, at least not right away.

As for the other potential issues with not getting married, this is obviously a hypothetical question. Sure there are potential downsides to not getting married, thus I ask the question of "how much would it take?"
Normchad
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Re: Would you get divorced for tax savings?

Post by Normchad »

I’d be willing to consider it.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

snackdog wrote: Wed Jun 22, 2022 11:24 pm Most people pay less taxes once married. Cap gains on a residence is double for married couples. Your friends may need a better tax advisor.
This question is specific to a certain situation where the couple would pay more taxes when married. If you want to address different situation, I suggest starting a new post.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

Normchad wrote: Wed Jun 22, 2022 11:27 pm I’d be willing to consider it.
Do you have a dollar figure in mind?
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

pasadena wrote: Wed Jun 22, 2022 11:25 pm
TropikThunder wrote: Wed Jun 22, 2022 11:10 pm I’m wondering what kind of scenario results in a $7,000 tax difference.
Very high earners, apparently.

To answer OP's question, probably none, unless they got married for money. That said, this is something one may want to assess *before getting married*, if it's that important.
You are correct that they are relatively high earners. For simplicity, I assumed that they would only save $7k per year for the rest of their careers. However, in reality, their income is expected to increase from both inflation and pay increases as they progress in their careers. So the actual amount saved would likely be much more.
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Re: Would you get divorced for tax savings?

Post by Normchad »

Lowlim wrote: Wed Jun 22, 2022 11:34 pm
Normchad wrote: Wed Jun 22, 2022 11:27 pm I’d be willing to consider it.
Do you have a dollar figure in mind?
Good question. Many years ago, I discussed getting a divorce with my wife, so that we could qualify for food stamps for the baby, etc etc. I was half joking, but only half. She made it very clear that we wouldn’t be doing anything like that. So it’s off the table for us, and that’s kind of why I said “I would consider it”. I know she wouldn’t.

Maybe another way to look at it is this, what is the financial benefit to being married. If the tax savings could exceed that, it would be worth considering. Off the top of my head, the big one is the SS benefits she’d get if I died. I think that right now would be something like $20K year.(I should discount that though, because so far, I haven’t died). There is also some actual tax savings for us to being married.

So,I’ll say I’d do it for $20K/year. Honestly, I’d probably be willing to do it for $10K. My wife wouldn’t though….
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Re: Would you get divorced for tax savings?

Post by ivgrivchuck »

In my books some things (family, friends, good conscience) cannot be traded for any amount of money.

What good is it to have $100M and be miserable?
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Topic Author
Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

Normchad wrote: Wed Jun 22, 2022 11:41 pm
Lowlim wrote: Wed Jun 22, 2022 11:34 pm
Normchad wrote: Wed Jun 22, 2022 11:27 pm I’d be willing to consider it.
Do you have a dollar figure in mind?
Good question. Many years ago, I discussed getting a divorce with my wife, so that we could qualify for food stamps for the baby, etc etc. I was half joking, but only half. She made it very clear that we wouldn’t be doing anything like that. So it’s off the table for us, and that’s kind of why I said “I would consider it”. I know she wouldn’t.

Maybe another way to look at it is this, what is the financial benefit to being married. If the tax savings could exceed that, it would be worth considering. Off the top of my head, the big one is the SS benefits she’d get if I died. I think that right now would be something like $20K year.(I should discount that though, because so far, I haven’t died). There is also some actual tax savings for us to being married.

So,I’ll say I’d do it for $20K/year. Honestly, I’d probably be willing to do it for $10K. My wife wouldn’t though….
Thanks for sharing. That's a good way to look at it.

Do you think there would be an amount where your wife would consider it, too? I'd have to imagine that, hypothetically, if getting divorced for for one year and then getting remarried would mean financial freedom, then she'd be open to it.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

ivgrivchuck wrote: Wed Jun 22, 2022 11:47 pm In my books some things (family, friends, good conscience) cannot be traded for any amount of money.

What good is it to have $100M and be miserable?
There's no reason to think that you'd be miserable as long as both spouses are on the same page. It's actually the opposite. If the amount of money were enough and it was spent wisely, it could improve your lives together and possibly even those around you.

For the couple I mentioned, it could mean a much more comfortable retirement together and/or education for their future children.
privateer79
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Re: Would you get divorced for tax savings?

Post by privateer79 »

it wouldn't pencil out after the hospital bills that would come after broaching the subject with Dear wife. :P
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Re: Would you get divorced for tax savings?

Post by gougou »

I probably would do it for $50k/yr.

I guess they didn’t bother to get divorced for $7k/yr. They probably make $1M together so $7k is too little for the hassle.
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Re: Would you get divorced for tax savings?

Post by Lowlim »

privateer79 wrote: Wed Jun 22, 2022 11:56 pm it wouldn't pencil out after the hospital bills that would come after broaching the subject with Dear wife. :P
Hospital or cemetery bills? :P

I'm more than happy to introduce the idea to your wife so you can see how she reacts. You can even pretend you never considered it and even act outraged that it was brought up.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

gougou wrote: Thu Jun 23, 2022 12:00 am I probably would do it for $50k/yr.

I guess they didn’t bother to get divorced for $7k/yr. They probably make $1M together so $7k is too little for the hassle.
Is there anyone here that wouldn't do it for $50k/year?

With 6% to 10% returns, that would mean ~$7.7M to $22.1M after 40 years. That would be enough to fund a great retirement, education expense for several generations, and lots of other great things.
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celia
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Re: Would you get divorced for tax savings?

Post by celia »

Somewhere I read that there are something like 100 federal benefits that are available to married couples that singles don’t get. The one mentioned here quite often is the spouse who lives longer can receive their deceased spouse’s SS if it is higher than theirs. Singles can’t do that.

Then there will be years when their incomes are different than now. Their Single status could cost them more than $7,000 a year in some years. For example, if one of them is not working (for any reason), their Federal and State income taxes will be less if they file jointly.

Having dual employer health insurances can save you more than $7,000 in some years. After one of my kid’s birth, two insurances paid and it totaled more than 100%, even though I informed the secondary carrier that they were over-paying.

If you have kids, they will feel more secure knowing their parents are married. The kids hear stories from their friends whose parents are going through a divorce and see the after-effects of separate households. After a long talk with a co-worker who was living with his girlfriend and their joint 4 kids, they got married over the Christmas break and their kids were ecstatic (and were witnesses). (Of course, this is just one case.)

But if you live in a common-law state, you might be considered married anyways under certain conditions.
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Last edited by celia on Thu Jun 23, 2022 12:28 am, edited 1 time in total.
Normchad
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Re: Would you get divorced for tax savings?

Post by Normchad »

Lowlim wrote: Wed Jun 22, 2022 11:50 pm
Normchad wrote: Wed Jun 22, 2022 11:41 pm
Lowlim wrote: Wed Jun 22, 2022 11:34 pm
Normchad wrote: Wed Jun 22, 2022 11:27 pm I’d be willing to consider it.
Do you have a dollar figure in mind?
Good question. Many years ago, I discussed getting a divorce with my wife, so that we could qualify for food stamps for the baby, etc etc. I was half joking, but only half. She made it very clear that we wouldn’t be doing anything like that. So it’s off the table for us, and that’s kind of why I said “I would consider it”. I know she wouldn’t.

Maybe another way to look at it is this, what is the financial benefit to being married. If the tax savings could exceed that, it would be worth considering. Off the top of my head, the big one is the SS benefits she’d get if I died. I think that right now would be something like $20K year.(I should discount that though, because so far, I haven’t died). There is also some actual tax savings for us to being married.

So,I’ll say I’d do it for $20K/year. Honestly, I’d probably be willing to do it for $10K. My wife wouldn’t though….
Thanks for sharing. That's a good way to look at it.

Do you think there would be an amount where your wife would consider it, too? I'd have to imagine that, hypothetically, if getting divorced for for one year and then getting remarried would mean financial freedom, then she'd be open to it.
My wife and I are pretty well off now. So I don’t think she’d ever consider it.

However, if we were desperate, I think everything’s on the table. So it’s probably mostly a question of personal circumstance.

I love my wife. And I’m absolutely committed to her forever, no question. That’s what’s important to me. Whether there is a piece of paper at the government offices recording or recognizing that isn’t much important to me. She’s important to me, not that paper.

But it’s important to her and lots of other people. But if there was some big problem that could be solved by doing this, then sure, why not. Being legally married has some very nice advantages, but at least for me, I don’t have an emotional or sentimental attachment to it. I do recognize and value the legal protections that it affords both of us though.
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Re: Would you get divorced for tax savings?

Post by gougou »

Lowlim wrote: Thu Jun 23, 2022 12:05 am
gougou wrote: Thu Jun 23, 2022 12:00 am I probably would do it for $50k/yr.

I guess they didn’t bother to get divorced for $7k/yr. They probably make $1M together so $7k is too little for the hassle.
Is there anyone here that wouldn't do it for $50k/year?

At 6% to 10% returns, that would mean ~$7.7M to $22.1M after 40 years. That would be enough to fund a great retirement, education expense for several generations, and lots of other great things.
But I’m not going to work 40 years. If we each make $500k/yr, we’ll be semi-FIRE pretty quickly and one of us will quit, making marriage a tax benefit.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

Normchad wrote: Thu Jun 23, 2022 12:28 am I love my wife. And I’m absolutely committed to her forever, no question. That’s what’s important to me. Whether there is a piece of paper at the government offices recording or recognizing that isn’t much important to me. She’s important to me, not that paper.

But it’s important to her and lots of other people.
Do you know why the piece of paper is important to her?

If you had gotten married at a destination wedding abroad, would she feel that it was important to get a foreign marriage certificate from that region? If so, would she want both a certificate from that region abroad and one in your home country? If you got married in one country and then decided to move abroad, would she then want a new marriage certificate from the new county where you both reside?
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

gougou wrote: Thu Jun 23, 2022 12:31 am
Lowlim wrote: Thu Jun 23, 2022 12:05 am
gougou wrote: Thu Jun 23, 2022 12:00 am I probably would do it for $50k/yr.

I guess they didn’t bother to get divorced for $7k/yr. They probably make $1M together so $7k is too little for the hassle.
Is there anyone here that wouldn't do it for $50k/year?

At 6% to 10% returns, that would mean ~$7.7M to $22.1M after 40 years. That would be enough to fund a great retirement, education expense for several generations, and lots of other great things.
But I’m not going to work 40 years. If we each make $500k/yr, we’ll be semi-FIRE pretty quickly and one of us will quit, making marriage a tax benefit.
In that case, you could just wait until one of you stops working before getting married. You can have your cake and eat it, too.
penumbra
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Re: Would you get divorced for tax savings?

Post by penumbra »

I’d find a better accountant.
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Re: Would you get divorced for tax savings?

Post by toast0 »

It was slightly mentioned, but $7k of tax cost now may be outweighed by spouse's SS record if one partner ends up making significantly less. If you're married for 10 years before divorcing, you get to keep that, might be worth $70k (although, maybe it's better to wait and rack up the ten years of marriage while the income is uneven; then you might even get a tax saving. IMHO, being married makes a lot of administrative things easier, and that might be worth $7k/year, if your taxes are that high, spending money to make administrative things easier is a no brainer.

On the married couple getting twice the single person's capital gains exclusion on a home sale, that's true, but if the house was owned jointly by two single people, they'd each get the single capital gains exclusion, so it doesn't help much, although you'd need to be more careful about titling the home.
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celia
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Re: Would you get divorced for tax savings?

Post by celia »

13 Legal Benefits of Marriage

Marriage Rights and Benefits (Nolo)

Benefits of Marriage

If these benefits aren’t worth $7,000 a year, I don’t know what is!

(Sorry for some duplication in the lists.)
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Re: Would you get divorced for tax savings?

Post by gougou »

Single people get $10K SALT deduction each, while married couple get $10K SALT total.

Single co-owners of their primary residence get double the deductible limit on the mortgage. As interest rate rises this could be huge for people living in HCOL areas.

For example, if a married couple buy a $2M home together with $1.5M mortgage at 6% interest rate, they can deduct $750K x 6% = $45K from their income. If they are not married and they jointly own the home and jointly owe the mortgage, each could deduct $750K x 6% = $45K. If they are at 40% marginal tax rate that’s a tax saving of $18K/yr.
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

celia wrote: Thu Jun 23, 2022 12:52 am 13 Legal Benefits of Marriage

Marriage Rights and Benefits (Nolo)

Benefits of Marriage

If these benefits aren’t worth $7,000 a year, I don’t know what is!

(Sorry for some duplication in the lists.)
Is it worth waiting to get these benefits by getting married later if it meant an extra $1.08M to $3.1M for one's retirement? If not, what if the amount was more? Is there an amount that would make you consider delaying getting married?
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Lowlim
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Re: Would you get divorced for tax savings?

Post by Lowlim »

penumbra wrote: Thu Jun 23, 2022 12:47 am I’d find a better accountant.
This has already been covered and reference provided. There are situations where couples have a marriage penalty.
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celia
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Re: Would you get divorced for tax savings?

Post by celia »

Lowlim wrote: Thu Jun 23, 2022 1:01 am
celia wrote: Thu Jun 23, 2022 12:52 am 13 Legal Benefits of Marriage

Marriage Rights and Benefits (Nolo)

Benefits of Marriage

If these benefits aren’t worth $7,000 a year, I don’t know what is!

(Sorry for some duplication in the lists.)
Is it worth waiting to get these benefits by getting married later if it meant an extra $1.08M to $3.1M for one's retirement? If not, what if the amount was more? Is there an amount that would make you consider delaying getting married?
No. Life is a journey. You either want to marry someone or you don’t. But one day you are in an accident and need hospitalization. No one tells the ambulance “Wait, I want to get married first so I have more medical insurance.” Or spouses who want to be buried in different cemeteries don’t divorce just to prevent the survivor (after the first dies) from being able to put the first deceased in the survivor’s cemetery. (Weird example, I know.) Life just happens and you (singly or jointly) just make decisions as unexpected things happen. If your marital status at that time gives you a financial benefit, ok. If it doesn’t, that’s ok too.

There are also non-financial benefits like a tendancy to have a longer life expectancy and receiving emotional support (per an article I didn’t include in the list).
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Re: Would you get divorced for tax savings?

Post by Ron Ronnerson »

Another situation I can think of that involves a marriage penalty is with the premium tax credit for health insurance under the Affordable Care Act. Assuming it is a year other than 2021 or 2022 (when the subsidy cliff was temporarily eliminated), two single people earning $50k each would have income low enough to receive the credit. If they were married and had a combined income of $100k, they’d fall off the subsidy cliff and not qualify for the credit (assuming they don’t have children).

Depending on age and location, the lost tax credits for the two individuals could be substantial. If they decide the health insurance is just too expensive for them to afford, they may take a pass all together and then face financial ruin if there is an illness or injury at some point. The medical bills avoided as a result of having (subsidized) insurance coverage due to being unmarried could provide a benefit far greater than a few thousand dollars saved per year.

Here’s a relatively recent article I came across about a couple who divorced for reasons related to the premium tax credit: https://indianapublicmedia.org/news/fix ... ivorce.php

OP: I don’t have a simple answer to your question but I think just about everyone has a price at which they’d consider divorcing if the tax benefit were substantial enough. For example, if the tax rate for married people were 99% and 1% for single people, I think marriages would begin to disappear from society awfully quickly.

You asked about a savings of $7k per year. That could be considered a huge sum or a relatively small amount. It really depends on factors such as age, income, and net worth of the individual.
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Re: Would you get divorced for tax savings?

Post by 59Gibson »

It's a shame elements of the tax code discourage/punish marriage, reasons delve into politics. I would not dissolve my marriage for $7k/yr
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SconnieBro
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Re: Would you get divorced for tax savings?

Post by SconnieBro »

I nearly spit out my coffee this morning as I logged on to see this post at the top of the boards. Dare I say Bogleheads.org has reached its pinnacle here?!

No, we would not. As others have stated, there are a significant number of advantages to being married. Sure, one or two unique circumstances may potentially make sense where one might consider this, but I would imagine couples in those particular circumstances would not need to squabble over $7k a year.
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oldcomputerguy
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Re: Would you get divorced for tax savings?

Post by oldcomputerguy »

Everyone's answer to this question will be specific to their own situations and life philosophies, so it's almost impossible to get an actionable answer to this question. Also, the couple in the real life example apparently have already made their decision, so the question is not being asked on their behalf, and any answers given here will not affect their own situation. This topic is therefore locked (not personal nor actionable). See: A reminder that non-investing general comment threads are OT
- It must be personal. In other words, you must be asking about your own situation. You can also ask on behalf of someone specific, such as a family member.

- It must be actionable. You must be able to do something specific with the replies that will make a difference in your situation.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
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