YOUR MONEY: For Richer, For Poorer, Till Taxes Do Us Part

Written by Julian Block, Detroit Free Press, Thursday, November 7, 1996

Tax planning involves more than just timing the payment of deductibles or the receipt of income to your best advantage. For instance, you need to consider any anticipated change in your filing status for 1996 or 1997. The often overlooked strategy is that the advancement or postponement of the date of a marriage or divorce by a single day at year-end can make a sizeable difference in the amount of your tax tab for both years.

Your marital status as of Dec. 31 usually determines your filing status for the entire year, cautions John Bogdanski, author of "Federal Tax Valuation" (Warren, Gorham & lamont). Therefore, the Internal Revenue Service ordains that you are a married person for all of 1996, though your divorce or legal separation takes place as late as the last day of the year.

Suppose, for example, that you and your prospective mate both earn roughly the same. In that event, matrimony before the end of 1996 may be costly. Reason: The taxes that the two of you become obligated to pay on your combined incomes as marrieds can turn out to be a good deal more than they would be as two unmarrieds who share lodgings and report exactly the same incomes - a law quirk that is known as the "marriage penalty," or, depending on one's point of view, "sin subsidy." But if you delay the ceremony until next year, you get a reprieve from the marriage penalty for this year.

Conversely, a marriage this year is a smart move when one of you earns the bulk of the income or considerably more than the other. Your taxes as a couple filing jointly will be less than if you remain unmarried.

Similar rules apply to couples who cut their ties. A divorce near the end of the year means that you forfeit the benefits of joint filing for all of 1996. To save taxes, you have to grin and bear it beyond Dec. 31. What if a single provides an advantage? You can achieve that goal only if you shed your spouse by Dec. 31.

PROFITING FROM A YEAR-END DIVORCE: These tax quirks have not gone unnoticed by tax-savvy, dual-income couples. To the surprise of absolutely no one but the tax collectors, an increasing number of these couples have journeyed to Haiti, or some other equally obliging place, to get a divorce in December and then to remarry in January. Some affluent couples announced on "60 Minutes" and other nationally televised programs that they slip into and out of marriage with annual quickie divorces, just so they can file as two unmarried persons and save a sizeable sum in taxes. It matters not for their savings are largely offset by the divorce fees; their outlays also allow them to frolic for a week or so in the Carribbean sun and to buy some extra-nice presents for the folks back home, all courtesy of those obliging souls at IRS.

These year-end arrangements prompted a public relations conscious IRS to issue a prim warning: It will disregard a divorce obtained solely to save taxes and require the couple to recalculate their taxes as if they had stayed married for the entire year. Nevertheless, a beleaguered agency readily concedes that couples can file as single persons when they get a regular divorce and simply live their lives out of wedlock. This arrangement has become a socially acceptable way of life for nire than 3.6 million couples who fit the Census Bureau's description of POSSLQs, the acronym for persons of the opposite sex sharing living quarters.

Julian Block is a nationally syndicated columnist and a former IRS investigator and attorney. His annual guide, Julian Block's Tax Avoidance Secrets, has been praised by Money, the New York Times, and the Wall Street Journal as "the best tax book." For a postpaid copy, send $19.95 (a 33 per cent discount to J. Block, Dept. D, 3 Washington Square, Larchmont, NY 10538-2032. Divorce-Online wishes to thank Julian Block for permission to reprint this very informative article.

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