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Financial Planning / Tax Strategies
|Subject: Re: Marriage Penalty Returns||Date: 1/22/2013 3:46 PM|
|Author: SamuelClemens||Number: 117491 of 121061|
On the Petition for Divorce, you would call it an irreconcilable difference...
As in "I cannot reconcile our desire to save $20K on the yearly taxes and the fact that we are married?" That is enough? Is that legal?
Just some background on all of this and an update.
It started when I was driving to work listening to the radio and discussion of the fiscal cliff and the end of the year agreement. They mentioned the marriage penalty would return to high earners, and described exactly our situation. Before this I had not even thought about it. You know, just live, work, and pay taxes.
When I did take a first look it showed that we would have this $20K per year penalty in 2013. But I still did not think it was real, mistakenly thinking that we could just file separately and get the single tax rates. On the second look I started to learn that this was not possible, and this is when I made the original post of this thread. In hindsight, I can see we have paid this marriage penalty for years now -- the new tax brackets made the penalty larger (about double).
Of course I recognize this is simply a public message board, but I think it gives a pretty good vetting of what is an unorthodox strategy. I thank everyone for their responses. Well, most of you anyway. In my mind it has reached the point where I should seek paid advice. I have contacted my CPA for an attorney recommendation.
Believe me "divorce for profit" is not a step we consider lightly. The decision to marry 23 years ago was the best decision of my life. But it is a significant enough amount that I must consider it. Assuming it is not illegal, or even the grey area, then I have not been persuaded that it is immoral. My marriage vows are between my wife and me. Nor have I been persuaded that it is immoral to arrange matters to lessen taxes (no matter how much you make).
There may be another option: Deferring income by one of us. Care to vet this idea?
One of us has the ability to defer our income. The idea would be to defer essentially 100% of one of our incomes, to be paid out over a 15 year time span after termination of employment. It would smear those earnings over fifteen years instead of the next five years or so. That way we would revert to a one-income family and not see the marriage penalty.
There are a couple of immediate problems with this plan though. We have to make the declaration before the fiscal year, which is the calendar year, and we have recently made our declaration for 2013 (deferring 20% of salary and 75% of bonus). And, "unfortunately", there are also in-the-money stock options for this spouse which vest and we intend to exercise and the income cannot be deferred. It puts us right back in the marriage penalty.
Further problems are ones that I suppose are usually associated with deferred income plans. You run the risk of the company not existing 15 years down the road, and you are limited to the investment choices provided by the plan. I am not too worried about the former, but the latter is a partial issue.
I checked our medical plan and it allows for coverage of a "partner". As for how well the marriage contract can be simulated, I will still have to wait and get some professional advice. I could go to the chap who set up our boiler plate living trust, but I think I want someone who has seen this type of thing before, although I don't know how I would find them. Should I start hanging out in gay bars?
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