Author Topic: Reader Case Study- should I divorce my husband?  (Read 25938 times)

Drey

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Reader Case Study- should I divorce my husband?
« on: September 08, 2014, 08:30:21 AM »
Hello all,  I am brand new to the forums, so I apologize if this has been asked elsewhere. 

I have been married to a wonderful man for almost 10 years who I plan to spend the rest of my life with.  However, we are getting hit by the marriage penalty.  HARD.   

I am a physician, Income ~$220 K,  He is an engineer  ~$80K

Being married, I bump his entire income into my tax bracket, costing us $20K PER YEAR in extra taxes.   If we divorced, we could be saving that money.  Possibly even more if I could arrange to pay him child support, deducting that from my income, and adding it to his lower tax bracket.   We get health insurance through my work, which also allows "domestic partners" to get health insurance, and could add him as a domestic partner with very little documentation required, so he could stay on my policy if we divorced.   Also, if we divorced after our 10 year anniversary, he is still able to claim my level of social security benefits in the future.

We are just coming off of a big-spending high (mostly travel and restaurants) after finally making good money for a few years after years of medical school and residency   and are starting to get serious about savings.  We own a $230K valued house, with $110 K left in the mortgage (15 year FRM at 2.75%, practically free money).   He bikes to work 3-4 out of 5 days.  I drive, but I work nights at a busy hospital and am not going to bike those times of day alone as a female.  I do live about 5 miles from work though, so the commute isn't bad.  We have 2 cars, both bought used, both paid off.  2001 Subaru outback and a 2007 Honda Odyssey.  I owe about $58,000 in student loans. 

We each max out our 401k plans (17K per year each), and save an additional 15K per year in another account. 

We have lots of other opportunities for cutting spending.  We spend a lot on the kids, I shop too much, we go out to eat too much, and we certainly travel too much for someone who is not yet financially free.   But, we have no TV and no credit card debt or car loans.   I KNOW there's lots we could be doing to cut spending under these categories, and we're working on that too,  but this big glaring $20K per year seems like easy pickings. 

Should I divorce the love of my life in pursuit of financial freedom?   

theadvicist

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Re: Reader Case Study- should I divorce my husband?
« Reply #1 on: September 08, 2014, 09:04:06 AM »
It doesn't feel right to me...

Presumably you pay a 'penalty' because there are other ways you benefit from being married - health insurance, sharing household expenses etc?

(I say presumably, because here in the UK you are always taxed as an individual, being married or not makes no difference to your tax liability, so I have no idea if this is true, I'm just wondering WHY you would be taxed more, and only reason I can see is that there are other benefits).

It just sounds like gaming the system. You love him, you want to be with him. It seems somehow cold to throw away your marriage for financial gain. I mean, if you're not bothered by the 'piece of paper' what made you get married in the first place?

Also, there would be big legal implications. When my husband and I got married one of the big things for me was that I was saying, 'Him. If someone has to pull the plug on my life support, I want him to make the decision'. I got to chose my next of kin, instead of it automatically being my parents, and we chose each other.

As for child support, again, I have limited knowledge of how it works in your location, but in the UK if you lived together, that would be enough to mean you couldn't claim it, I think. It's based on circumstances here, rather than precise statuses, since marriage is becoming less popular.

That said, I'm sure someone will come along now and say do whatever you can to minimise your tax.

Really, no-one can answer this question for you.

(Also, how does your husband feel about this prospect?)


theadvicist

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Re: Reader Case Study- should I divorce my husband?
« Reply #2 on: September 08, 2014, 09:04:59 AM »
"It doesn't feel right to me... "

I should have said "It wouldn't feel right for me". Didn't mean for my opening line to sound accusatory!

Timmmy

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Re: Reader Case Study- should I divorce my husband?
« Reply #3 on: September 08, 2014, 09:08:19 AM »
How are you calculating that? 

Check out http://marriagetaxcalculator.com/

It's ultra simplistic but plugging in just the salary numbers doesn't get anywhere close to 20k. 

Mister Fancypants

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Re: Reader Case Study- should I divorce my husband?
« Reply #4 on: September 08, 2014, 09:09:35 AM »
Marriage is more than a financial contract, if you think it is worth getting divorced to save $20k in taxes you should rethink your marriage as a whole...

My wife and I pay the marriage penalty and would never even think if having this conversation.

Not to mention the laws might change and your incomes might change and you may not always have the marriage penalty.

-Mister FancyPants

nordlead

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Re: Reader Case Study- should I divorce my husband?
« Reply #5 on: September 08, 2014, 09:12:20 AM »
Assuming you make no pre-tax contributions to anything and have no kids and take the standard deduction.

At 80k for a single person the federal income taxes would be ~13k.
At 220k for a single person the federal income taxes would be ~53k.
300k for a married couple the federal income taxes would be ~68k.

If I just back out the 401k contributions it looks more like this

At 62.5k for a single person the federal income taxes would be ~9k.
At 202.5k for a single person the federal income taxes would be ~47k.
265k for a married couple the federal income taxes would be ~57k.

So, I'm not too sure how you are getting hit up for 20k in taxes. So, without knowing all the details it looks like you might be able to save a couple thousand by getting a divorce. However, I haven't even considered other deductions/credits and their limits based on single vs. married.

This sounds like a really really bad idea to me and I would hope my spouse would never suggest (or even consider) such an idea.

nordlead

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Re: Reader Case Study- should I divorce my husband?
« Reply #6 on: September 08, 2014, 09:17:26 AM »
How are you calculating that? 

Check out http://marriagetaxcalculator.com/

It's ultra simplistic but plugging in just the salary numbers doesn't get anywhere close to 20k.

haha, I should have just googled this rather than quickly running the numbers through tax caster :-D

Drey

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Re: Reader Case Study- should I divorce my husband?
« Reply #7 on: September 08, 2014, 09:19:06 AM »
Thank you for the replies.  @theadvicist,  Certainly we share household expenses.  I'm not actually interested in Leaving my husband, I love him dearly and trust him completely.  I'm just wondering if the government issued piece of paper needs to go.   

Health insurance could be done even without being married, I did mention this originally. Documents could be created that still give him decision making power (healthcare and financial power of attorney). 

@Timmmy, I'm basing this off of the check I had to write to the government last year ($18K) despite both of us claiming Zero dependents (we actually have 2).  so our withholding is as if we were both single with zero dependents.  I still owed $18K with neglibile dividend income ($480).  That's where I got that number.  Although husband's company just set up his 401K plan this year (it's a startup) so that may benefit us.   

@Fancypants-  I don't want you to think I am anything other than wholeheartedly commited to my husband.  We are having this conversation because of our commitment to shared goals, not in regards to any doubts about each other.


hmmm, all these calculators keep saying the difference is only 2-3K per year, but the last few years I have written minimum 8K up to $18K checks to the government despite maximal withholdings.  Not sure if something is wrong with these calculators, or with my accountant.     
« Last Edit: September 08, 2014, 09:26:30 AM by Drey »

Louisville

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Re: Reader Case Study- should I divorce my husband?
« Reply #8 on: September 08, 2014, 09:20:08 AM »
If getting divorced would really save you that much money, well, there's that. You and your partner define your relationship, not the state government.
BUT, and this is a BIG BUT, surely there are other avenues to explore first. Divorce just seems like a baby/bathwater kind of solution. Start by googling "avoid the marriage penalty". Find a really good (probably expensive) tax lawyer. Think long and hard.

Cheddar Stacker

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Re: Reader Case Study- should I divorce my husband?
« Reply #9 on: September 08, 2014, 09:23:23 AM »
Assuming you make no pre-tax contributions to anything and have no kids and take the standard deduction.

At 80k for a single person the federal income taxes would be ~13k.
At 220k for a single person the federal income taxes would be ~53k.
300k for a married couple the federal income taxes would be ~68k.

If I just back out the 401k contributions it looks more like this

At 62.5k for a single person the federal income taxes would be ~9k.
At 202.5k for a single person the federal income taxes would be ~47k.
265k for a married couple the federal income taxes would be ~57k.

So, I'm not too sure how you are getting hit up for 20k in taxes. So, without knowing all the details it looks like you might be able to save a couple thousand by getting a divorce. However, I haven't even considered other deductions/credits and their limits based on single vs. married.

This sounds like a really really bad idea to me and I would hope my spouse would never suggest (or even consider) such an idea.

+1 to all of this. I did the exact same thing and got the same results. Don't do it.

On the Child Support question, child support is not deductible/taxable. Alimony is, so you'd have to go that route if you did this, but don't do this. Even if it did save you some cash, it wouldn't pass the sniff test when the IRS audits you.

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #10 on: September 08, 2014, 09:24:34 AM »
Maybe OP has lots of deductions or something?  Or has not actually run the numbers - the linked calculator comes up with a marriage penalty of less than 2k with standard deductions.

back of the napkin math only takes you so far with taxes - lots and lots (and lots) of particulars can have big time swings on the end results.

Any way, don't get divorced over a couple grand (even if it really were 20K, still wouldn't do it).  FIRE as goal that you both really buy into will more than make up for that, and it is great for building relationships.

theadvicist

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Re: Reader Case Study- should I divorce my husband?
« Reply #11 on: September 08, 2014, 09:25:30 AM »
Thank you for the replies.  @theadvicist,  Certainly we share household expenses.  I'm not actually interested in Leaving my husband, I love him dearly and trust him completely.  I'm just wondering if the government issued piece of paper needs to go.   
 

I understood you weren't interested in actually ending the relationship, just dissolving the marriage. So that's why I asked: If you don't think the piece of paper has any value, why did you get married in the first place?

I'm not trying to be obtuse, I'm asking what did you buy into when you did it? Because that's what you'd be giving up.

eyePod

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Re: Reader Case Study- should I divorce my husband?
« Reply #12 on: September 08, 2014, 09:26:04 AM »
Wouldn't you have to pay a lawyer a ton to have all the documents drawn up plus court costs?

What about the legal benefits (i.e. medical decisions, etc.) that you gain by being married?

Drey

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Re: Reader Case Study- should I divorce my husband?
« Reply #13 on: September 08, 2014, 09:31:08 AM »
@theadvicist,  I was 22 when I got married and fresh out of college.  We pooled our assets and had $6K between the two of us.  He was unemployed and I was starting medical school.  We got down to our last $1500 (and negative student loans) and he finally found work.  We married for all the same reasons anyone marries for.  Ten years later, and repeatedly writing checks to the government, we find that the government paperwork means less to us than our shared goals and each other.  I would get his name happily tattooed in a visible location, but do I still need to write checks to the IRS to prove my love?   

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #14 on: September 08, 2014, 09:35:30 AM »
We get the point as to why - just be aware that it appears to some of us (some of whom are actual tax accountants) that your expected savings are off by an order of magnitude, based on information provided.  Make sure your numbers are right before making a decision like this.

boarder42

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Re: Reader Case Study- should I divorce my husband?
« Reply #15 on: September 08, 2014, 09:37:52 AM »
if the savings are that great.  i mean i'd probably do it if i could convince my wife.  Marriage is just a dumb label and if that label is costing you 20k a year.  why not do away with it.  essentially nothing in you life changes except for more money.

Timmmy

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Re: Reader Case Study- should I divorce my husband?
« Reply #16 on: September 08, 2014, 09:40:52 AM »
 

@Timmmy, I'm basing this off of the check I had to write to the government last year ($18K) despite both of us claiming Zero dependents (we actually have 2).  so our withholding is as if we were both single with zero dependents.  I still owed $18K with neglibile dividend income ($480).  That's where I got that number.  Although husband's company just set up his 401K plan this year (it's a startup) so that may benefit us.   


Withholding has nothing to do with the amount of taxes you pay.  It's just an estimate done when issuing your paycheck.  If you don't want to write a check at the end of the year, ask for additional withholding on your paycheck.  You can specify an amount in addition to the calculated amount.  Also, you can/should make quarterly estimated tax payments. 

Talk to your tax person about your particular situation.  I've done this calculation for clients before.  It's something we check for all high income clients. 

Timmmy

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Re: Reader Case Study- should I divorce my husband?
« Reply #17 on: September 08, 2014, 09:44:11 AM »
if the savings are that great.  i mean i'd probably do it if i could convince my wife.  Marriage is just a dumb label and if that label is costing you 20k a year.  why not do away with it.  essentially nothing in you life changes except for more money.

If the savings were that great there would be a whole lot more people getting divorced for this reason.  I've never seen an actual 20k "marriage penalty". 

Gone Fishing

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Re: Reader Case Study- should I divorce my husband?
« Reply #18 on: September 08, 2014, 09:46:02 AM »
Does your state require a separation period?  That could kill the whole idea right there.  Are you going to get remarried if, down the road, you would get a marriage subsidy? 

oldtoyota

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Re: Reader Case Study- should I divorce my husband?
« Reply #19 on: September 08, 2014, 09:46:41 AM »
Okay, I'll ask. Why are you claiming zero dependents if you really have two?

Drey

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Re: Reader Case Study- should I divorce my husband?
« Reply #20 on: September 08, 2014, 09:47:38 AM »
Thank you everyone, truly.   Perhaps I am attributing the entire end of year check to the marriage penalty when in fact I would just owe that anyways.   I did ask for an additional $500 per paycheck last year withholding and ended up not writing a 5-figure check at least.    I will check this out with the accountant.   Perhaps I would not save as much as I think I would.   

To those of you horrified at this conversation, I truly don't mean to treat marriage flippantly.  Husband and I were just talking about ways to save money, and this (semi) jokingly came up, and then turned into a serious discussion.   I thought I'd ask the opinions of the board here. 

I'm claiming zero because if I claimed 2, they would withhold less, assuming I could deduct more, and I'd be writing an even bigger check each April. 

Cheddar Stacker

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Re: Reader Case Study- should I divorce my husband?
« Reply #21 on: September 08, 2014, 09:49:33 AM »
Okay, I'll ask. Why are you claiming zero dependents if you really have two?

I think she means on the W-4 which determines your withholdings. On the actual tax return (1040) they would be silly not to claim the dependents.

Re-do the W-4's, that's your problem. As Timmmy suggests, do it with someone who really knows this stuff well. Being married is not your problem.

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #22 on: September 08, 2014, 09:52:26 AM »
Just read that thing Timmy was responding to - OP, you fucked up your W-4s, that is why you owed 18K last year.  Did you just get out of residency last year, or has this happened for a few years running?  Married with 0 dependents is not correct W-4 for your situation.  Back when you were a resident and he was unemployed, it probably worked well enough.  A reasonable safe harbor to avoid owing come April 15 would be for both of you to file single W-4s with 0 dependents.  That's assuming you don't want to do the worksheet to figure out the correct way to get your withholding right.  You probably need to do that, and have additional withheld for the remainder of this year (or send in some estimated taxes). 

If you're getting a big refund, or owe a ton, you're doing something wrong unless you had a big change in taxable income mid-year.  Ideally you'd have a small refund / owed amount - that means you sent in close to  the correct amount of taxes.

Take a look at whitecoatinvestor.com - it is a personal finance blog for doctors - perfect for your situation.

Proud Foot

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Re: Reader Case Study- should I divorce my husband?
« Reply #23 on: September 08, 2014, 09:59:20 AM »
Drey,

It seems to me like you are serious about your commitment to your marriage. Have you looked at filing your taxes Married filing separately? To me this seems like it would accomplish what you are wanting to in relation to taxes without having to go through the divorce process.

rujancified

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Re: Reader Case Study- should I divorce my husband?
« Reply #24 on: September 08, 2014, 10:04:11 AM »
I got married at the end of 2012 and we've filed joint since then. We both make roughly the same amount of very good income. In both years, he claimed 0 and I claimed 1. We got money back for 2012 and owed roughly that same amount for 2013, about a 11k swing.

That's when I learned all about withholding calculators and how the gubmint calculates what's taken out. I am not a tax expert, but what it sounded like to me was that they assume that a married person's paycheck is the only paycheck. So they're taking out enough from my check that, were I the only earner, we'd be close to zeroed out. So each of our paychecks jumped higher when we changed to "married" status (end of 2012) and then we had to render unto Caesar in April in a lump sum.

I used the irs.gov withholding calculator to figure out how much additional needed to come out. Super robust and confusing, so I had my accountant* check my math. We should be okay for 2014 (small payment or return). Not fundamentally different than writing a check in April, but it upsets me less.

Anyway, you could absolutely get divorced and set up all the legal rights with an attorney. If it's fiscally sound to do so, of course. You'd probably outlay a bunch of cash initially to get the documentation airtight, but not sure if it's worth it long run.

*Yeah, yeah, yeah, I should do my own taxes. Rental depreciation messed me up and I'm still a little gun-shy about it.

Cheddar Stacker

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Re: Reader Case Study- should I divorce my husband?
« Reply #25 on: September 08, 2014, 10:04:25 AM »
Drey,

It seems to me like you are serious about your commitment to your marriage. Have you looked at filing your taxes Married filing separately? To me this seems like it would accomplish what you are wanting to in relation to taxes without having to go through the divorce process.

No, don't do that. Married filing separately has enormous negative consequences. Things like not being able to deduct student loan interest, having to carefully plan out itemized or standard deductions, not being able to contribute to certain retirement investments, and others. It will not help this situation. 98% of the time MFJ > MFS.

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Re: Reader Case Study- should I divorce my husband?
« Reply #26 on: September 08, 2014, 10:05:00 AM »
As others have said, you should run the (real) numbers.  I have no idea how it affects the tax situation, but bear in mind that only one of you would be able to claim your dependents as such, were you divorced.  Also, don't forget to run the numbers for your state taxes.  Being divorced may also affect things like whether you can legally be listed as co-owning things (cars, houses) and ditto for insuring them (or what it costs to do so and how complicated it is).  And there may be other (small?) effects -- as one example of a small one, I know that when my DH and I traveled this summer we were able to share a single rental car and both drive it, with no additional cost, but my mom had to pay $10/day to be listed as a second driver when travelling with a friend.

Quote
We get health insurance through my work, which also allows "domestic partners" to get health insurance, and could add him as a domestic partner with very little documentation required, so he could stay on my policy if we divorced.

Unless I'm mistaken, for other than a married couple, if one's insured as the partner to the other the value of that insurance becomes taxable.

All stuff to figure, as you do the math.

Personally I wouldn't do it just on principle, but that's me ...

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #27 on: September 08, 2014, 10:07:07 AM »
Drey,

It seems to me like you are serious about your commitment to your marriage. Have you looked at filing your taxes Married filing separately? To me this seems like it would accomplish what you are wanting to in relation to taxes without having to go through the divorce process.

I doubt this would actually result in lower taxes - sometimes it does, but it is rare that separately works out better than jointly.  The issue here is not that "we owe 20K more than we would if single".  It is "we had too little withheld and had to send in a check for 20K with my taxes".

Proud Foot

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Re: Reader Case Study- should I divorce my husband?
« Reply #28 on: September 08, 2014, 10:20:02 AM »
Cheddar Stacker and dandarc,

It appears I know next to nothing about Married Filing Separately. I must admit I do not like how taxes are prepared at all and only keep up on enough to be able to file my own. 

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #29 on: September 08, 2014, 10:24:33 AM »
One other thing Drey - you mentioned that you have an accountant.  Did your accountant tell you you were getting hit by the marriage penalty to the tune of 20K / year?  Because if s/he did, this is a sign you need a new accountant.  Enough people here thought "20K marriage penalty on 220 / 80 income doesn't seem right" to go and find out it actually isn't right - your accountant who you are paying to know these kinds of things should have had a similar reaction to this question.

Quick primer on the marriage penalty - it gets worse the higher your incomes are, and the more equal they are - to get to 20K in marriage penalty, you'd need to each be making something like 300K per year - maybe you'll get there someday, but you're not there today.

Read WCI's (whitecoatinvestor.com) recent article about Shaq.  It does a good job of explaining why you need to have a reasonable understanding of personal finance.  You can still work with advisors / accountants, but you need to understand these things well enough just to be able to know if you're getting reasonable advice or not.

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #30 on: September 08, 2014, 10:33:52 AM »
Cheddar Stacker and dandarc,

It appears I know next to nothing about Married Filing Separately. I must admit I do not like how taxes are prepared at all and only keep up on enough to be able to file my own.
Take Cheddar's advice - just don't do it.  You are married - you must file either jointly or separately.  It is exceedingly rare that filing separately is better than jointly, and there are big downsides.

My in-law's file separately, but they are doing it because he has a tax problem from the '90s that is still haunting him to this day.  He was building houses, and making a lot of money, but took on too much risk and got caught having spent money he should have sent to the IRS right when there was a bit of a housing bust that put his house-building operation out of business. Makes sense for them to file separately now, however, had they been better with their finances 20+ years ago, and had gotten better advice, they would not be in this situation at all.  Seriously, their accountant (lawyer? someone the trusted) advised them to basically try and wait out the IRS for 10 years - IRS comes calling 9.5 years later, and this has now escalated to possible fraud due to just ignoring the problem they knew about for so long, that none of the usual limitations apply, and this guy is 66, not making all that much, and having his wages garnished by the IRS - this is not where you want to be in a few decades.

Drey

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Re: Reader Case Study- should I divorce my husband?
« Reply #31 on: September 08, 2014, 10:45:41 AM »
It appears my math is wonky. accountant told me what was owed, and I didn't ask to see the breakdown. Will do in the future.  So, the penalty is less, but if I was spending "only a couple thousand" each year on manicures, I'd be in for some face punching.  I'd say the question stands, just with a lower price tag.

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #32 on: September 08, 2014, 11:00:26 AM »
It appears my math is wonky. accountant told me what was owed, and I didn't ask to see the breakdown. Will do in the future.  So, the penalty is less, but if I was spending "only a couple thousand" each year on manicures, I'd be in for some face punching.  I'd say the question stands, just with a lower price tag.
Yeah definitely.  Just keep in mind things change - if your incomes change in a couple years, and now it would be better to file jointly, are you going to remarry?  If you are divorcing / remarrying the same person and both living under the same house, that would make a reasonable person (auditor) question the legitimacy of both the divorces and the marriages.  Then you have to decide on the non-financial benefits of being married and how much they are worth.  Relationship is rock-solid right now, but what if something awful happens (say one of your kids get hooked on drugs, or something worse happens?)  These types of things do happen and do rip marriages apart - is the risk of not having your marriage be legal down the road worth the cost?

Important that you are clear on the cost - 2K is a lot, but not nearly as much as 20K, so you can make an informed decision.

Cheddar Stacker

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Re: Reader Case Study- should I divorce my husband?
« Reply #33 on: September 08, 2014, 11:02:12 AM »
Are you saying we should punch people in the face for spending too much on taxes? If so, I try to do that regularly by pointing out the benefits of 401ks and Traditional IRA's rather than paying down debts or putting money into Roth IRA's.

I would not punch someone in the face for filing a joint tax return, or getting married for that matter. However, from a mustachian point of view if we are constantly thinking about optimization, maybe people should be considering the financial consequences of getting married before they do so? Maybe.

There are many benefits to having a partner, but you don't need that piece of paper to validate your feelings.

I would not advise getting a divorce strictly for tax reasons unless there were some serious savings and there was legal counsel advising on those potential consequences. I have professional advised clients to get married in order to save on taxes though. I didn't make them do it, and I told them don't do it if you otherwise wouldn't have, but I've specifically told people you will save $x in you marry your partner. Many times you're better off being married than single for tax purposes, but it's certainly not one size fits all. As an example, if your husband ever stopped working and you lived solely on your high income, you would benefit by a very, very wide margin being married.

So if you're still asking the question, for what it's worth I'd say my answer is still no. And based on only the details you gave us, I don't think it's costing you a couple thousand, I think it's costing you a couple hundred.

Roland of Gilead

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Re: Reader Case Study- should I divorce my husband?
« Reply #34 on: September 08, 2014, 11:02:23 AM »
I could probably work out a scenario where the penalty was close to 10K or so.

If the lower income spouse was going to school while working they would be able to deduct tuition if they were single but would be unable to deduct tuition when married to the high income earner.   That could be a few thousand right there.

If the higher income earner put the couple over the Obamacare robin hood extra taxes threshold, that could cause some serious pain.

The limit for an extra 0.9% Medicare tax for income exceeding $250,000 for a married couple and $200,000 for single (why is it not $400,000 for the married couple?) is a small one but the 3.8% extra tax on investment income could be pretty big if the couple had a lot of investments.   3.8% of $50,000 in capital gains/dividends is $1900.   If they each had $50,000 in capital gains and dividends and were single, the lower earner may not have to pay $1900 but if they are married they will owe $3800 on the combined investments.

Still, it is hard to get to $20K without some seriously wopsided wage earnings and seriously big investments.

I would do the divorce thing for 20K.   The paper is just something between you and the government, marriage is between you and your spouse.  F the government.

dandarc

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Re: Reader Case Study- should I divorce my husband?
« Reply #35 on: September 08, 2014, 11:12:23 AM »
(why is it not $400,000 for the married couple?)
'cause this is 'murica and an unnecessarily complex tax-code is our way of life.

Cheddar Stacker

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Re: Reader Case Study- should I divorce my husband?
« Reply #36 on: September 08, 2014, 11:18:13 AM »
(why is it not $400,000 for the married couple?)
'cause this is 'murica and an unnecessarily complex tax-code is our way of life.

First, there is no logic in the tax code. Your mind will explode trying to look at it that way.

If I had to bet, aside from "let's get more tax revenue", it would be that many (not all) married couples with an income > $250,000 would have only one wage earner anyway so the benefit they gave to that one wage earner was $50K.

Again, hard to find logic there, so I try not to look for it.

Good points though Roland, you can certainly find situations where the marriage penalty could be very large.

GizmoTX

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Re: Reader Case Study- should I divorce my husband?
« Reply #37 on: September 08, 2014, 11:25:13 AM »
Some states consider living together as husband & wife to be a common law marriage.

Getting divorced to try to save taxes sends the wrong message to your children about commitment.

Personally, we try to not have a refund -- it means we're lending the IRS money for free. However, writing a huge check means there's been a W4 error or big jump in income, & can expose you to penalties on top of your tax.

Full Beard

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Re: Reader Case Study- should I divorce my husband?
« Reply #38 on: September 08, 2014, 11:27:04 AM »
Hey Drey,

It's a good discussion to have and I'm glad you and your husband are looking at ways to increase the stache.  Did you not read the, "for richer or for poorer" vows?  You guys have a great income and you'll be able to save a ton of money.  In your original post you said you were both maxing out your 401Ks at 17K each.  I believe the maximum contribution limit for 2014 is $17,500.  That will save you a little bit there.

sandandsun

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Re: Reader Case Study- should I divorce my husband?
« Reply #39 on: September 08, 2014, 11:29:33 AM »
As someone who is not yet legally allowed to marry my partner of 10 years, the mother of my two children, I can tell you that I would be happy to pay an extra 20k in taxes every year for that right.  We have MANY other expenses that we would not have if our marriage was legally recognized in our home state (health care, legal costs, etc.).  And we have a high, but disparate income, so we took a hit on taxes this year too (the first year we were required to file jointly for federal taxes, but still as unmarried for state purposes)...

Anonymous Coward

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Re: Reader Case Study- should I divorce my husband?
« Reply #40 on: September 08, 2014, 11:42:05 AM »
My wife and I are both high pay physicians.

We have considered this issue it really does cost us 20k per year according to these people.

Once the kid situation is settled we probably will get divorced.

As others have said , you are calculating wrong. Your penalty is much much smaller

http://taxpolicycenter.org/taxfacts/marriagepenaltycalculator.cfm

.22guy

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Re: Reader Case Study- should I divorce my husband?
« Reply #41 on: September 08, 2014, 12:06:45 PM »
I can't really chime in on the tax or money saving aspect, but I will toss in my two cents on the marriage and relationship aspect.

I know you said your marriage is rock-solid and I'm sure your husband is a stand-up guy.  But in your situation, I would be worried about breaking that bond.  It might do more to your relationship than you think.  After all, people the world over divorce and cheat on your their spouses when they are legally married.  Lots of people (myself included) thought that my marriage was rock solid and it crumbled unexpectedly.   Just some food for thought.

MustacheCash

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Re: Reader Case Study- should I divorce my husband?
« Reply #42 on: September 08, 2014, 12:18:04 PM »
I think the larger question is that if you met your current husband now instead of before you two were making your current salaries, would you two get married then?  If your answer is yes, then the answer is simple that you stay married.  If your answer is no, you can then explore divorce, and the financial ramifications thereof, a little further.  While your answer to this question has less to do with finances and tax implications, so does life in general (and especially marriage).

tracylayton

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Re: Reader Case Study- should I divorce my husband?
« Reply #43 on: September 08, 2014, 12:20:33 PM »
What if one of you dies? I believe that would make a difference in the taxes you pay on the estate, but I am not an attorney or accountant.

FrugalSpendthrift

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Re: Reader Case Study- should I divorce my husband?
« Reply #44 on: September 08, 2014, 12:23:37 PM »
One way to eliminate the marriage tax penalty is to tell the husband to cut back on work, so that his wages drop below ~$60k.

But in all seriousness, maybe you should revisit the other opportunities for cutting spending, that you hinted at in your first post, since divorce isn't the easy pickings, that you thought it would be.

Timmmy

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Re: Reader Case Study- should I divorce my husband?
« Reply #45 on: September 08, 2014, 12:25:00 PM »
(why is it not $400,000 for the married couple?)
'cause this is 'murica and an unnecessarily complex tax-code is our way of life.

Anyone who has physically held our tax code in their hands knows the truth in this statement.  The code doesn't even include all the interpretations of the code...

niatpac

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Re: Reader Case Study- should I divorce my husband?
« Reply #46 on: September 08, 2014, 12:27:13 PM »
+1 to this as a fellow CPA.

[/quote]

Withholding has nothing to do with the amount of taxes you pay.  It's just an estimate done when issuing your paycheck.  If you don't want to write a check at the end of the year, ask for additional withholding on your paycheck.  You can specify an amount in addition to the calculated amount.  Also, you can/should make quarterly estimated tax payments. 

Talk to your tax person about your particular situation.  I've done this calculation for clients before.  It's something we check for all high income clients.
[/quote]

okashira

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Re: Reader Case Study- should I divorce my husband?
« Reply #47 on: September 08, 2014, 12:30:10 PM »
Hello all,  I am brand new to the forums, so I apologize if this has been asked elsewhere. 

I have been married to a wonderful man for almost 10 years who I plan to spend the rest of my life with.  However, we are getting hit by the marriage penalty.  HARD.   

I am a physician, Income ~$220 K,  He is an engineer  ~$80K

Being married, I bump his entire income into my tax bracket, costing us $20K PER YEAR in extra taxes.   If we divorced, we could be saving that money.  Possibly even more if I could arrange to pay him child support, deducting that from my income, and adding it to his lower tax bracket.   We get health insurance through my work, which also allows "domestic partners" to get health insurance, and could add him as a domestic partner with very little documentation required, so he could stay on my policy if we divorced.   Also, if we divorced after our 10 year anniversary, he is still able to claim my level of social security benefits in the future.

We are just coming off of a big-spending high (mostly travel and restaurants) after finally making good money for a few years after years of medical school and residency   and are starting to get serious about savings.  We own a $230K valued house, with $110 K left in the mortgage (15 year FRM at 2.75%, practically free money).   He bikes to work 3-4 out of 5 days.  I drive, but I work nights at a busy hospital and am not going to bike those times of day alone as a female.  I do live about 5 miles from work though, so the commute isn't bad.  We have 2 cars, both bought used, both paid off.  2001 Subaru outback and a 2007 Honda Odyssey.  I owe about $58,000 in student loans. 

We each max out our 401k plans (17K per year each), and save an additional 15K per year in another account. 

We have lots of other opportunities for cutting spending.  We spend a lot on the kids, I shop too much, we go out to eat too much, and we certainly travel too much for someone who is not yet financially free.   But, we have no TV and no credit card debt or car loans.   I KNOW there's lots we could be doing to cut spending under these categories, and we're working on that too,  but this big glaring $20K per year seems like easy pickings. 

Should I divorce the love of my life in pursuit of financial freedom?   

Sounds to me you are looking for a magic pill to solve your problems.
Don't be ridiculous.
On that income, you both could retire in 5 years flat if you really wanted to. Without a "divorce."
Focus on getting $104,000 / year into your 401k's. (e.g. get out off the hospitals payroll, and become independent and max out a solo 401k.)
Cut expenses.

You know, the "hard" stuff.


gimp

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Re: Reader Case Study- should I divorce my husband?
« Reply #48 on: September 08, 2014, 12:42:50 PM »
With due respect, this reminds me of the grey line between frugal and cheap. You're so far over the line there's no gray anymore. Divorcing someone but continuing to be with them for tax purposes is one of the cheapest things I've ever heard, and I heard about a guy who washes paper towels.

starguru

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Re: Reader Case Study- should I divorce my husband?
« Reply #49 on: September 08, 2014, 12:49:04 PM »
I don't know if anyone mentioned this, but (heaven forfend) something happened to one of you, and you are not married, I don't believe the deceased's assets would pass tax free.