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How to save on taxes? Try a divorce

If both partners make more than $400,000 a year, a married couple could end up paying more in taxes than two single wage earners would pay.

By MSN Money Partner Jan 14, 2013 12:18PM

This post is by Jacqueline Leo of The Fiscal Times.

 

© Mike Kemp/JupiterimagesClick the Huffington Post’s “divorce channel” (yes, the site has one) and you’ll see a typical women’s magazine story about the 10 signs you’re headed for a divorce.  You’ve heard it all before:
  • Forget being on the same page, you're not even in the same book.
  • You’ve outgrown her.
  • He doesn’t fulfill your needs.
  • You’re staying together because of the kids.
  • Blah, blah, blah.

Of all the known reasons for getting a divorce, we bet you've never heard this one before. You both make too much money to stay together! Sounds ridiculous, right? But the new fiscal cliff tax law that saved 99% of the country from massive tax hikes made a beeline for love-struck yuppies. 

 

Meet the new George and Martha: two investment bankers who fell in love over a bottle of Barolo while students at Wharton. They were made for each other and had the looks, the lifestyle and the resumes that Wall Street firms bid for. 

As their earnings and bonuses increased, they bought a 2,000-square-foot apartment in the heart of New York’s Tribeca. This was a paint-by-numbers picture: designer clothes, Hamptons weekends, movie premieres and trips to exotic places. Before long they were each making about $400,000 a year. And, thanks to the Bush-era tax cuts, they were able to keep a lot of that money and live the high life. 

 

That was before the tax deal that would save the country from recession and make George and Martha a bullet point on "signs you may be heading for divorce." The new law raises taxes on couples making more than $450,000 and individuals making more than $400,000. When their accountant told them they may have to limit their deductions because of their joint incomes as well, they asked her to run the numbers and come up with an alternative.

 

At their next meeting, she presented them with two options -- file as a married couple and pay the piper, or divorce and file as "single." As it turns out, George and Martha would save more than $27,000 a year if they divorced (you can see a chart here). And so they did. But they’re still together, in some ways closer than ever. 

 

They started their own business geared to couples like them called MisMatch.com. They analyze people’s taxes based on marital status, types of investments, etc., and try to save people a bundle. George and Martha’s next step  is to design new software to compete with the big tax programs for people at all levels of the tax code.


More from The Fiscal Times and MSN Money:

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30Comments
Jan 14, 2013 6:23PM
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In the year 2013, a remarkable coincidence will take place----both Groundhog day and the State of the Union address will occur on the same day.
This rare happening has special meaning.

One involves a meaningless ritual in which we look to an insignificant creature of little intelligence for insight into the future.

The other involves a groundhog....
Jan 14, 2013 2:05PM
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Just goes to show how stupid the tax code is!
Jan 14, 2013 3:40PM
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What happened to Obama coming across the ailse to negotiate. Another campaign promise broken! And oh yeah, no deficit reduction talks just more tax increase talks while we raise the deficit limit. That sucking sound you hear is America going down the drain.
Jan 14, 2013 5:31PM
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Blame Congress for deliberately putting a MARRIAGE PENALTY in the tax code.
Jan 14, 2013 3:35PM
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Congress is holding us hostage   Slim674!
Jan 14, 2013 6:06PM
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You don't have to be rich for there to be a marriage penalty. The old geezer tax break has a small marriage penalty of $300 per person in deductions.

Far worse is the marriage penalty on Social Security benefits.

Jan 14, 2013 2:11PM
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Obama is our first American Terrorist....whoopie
Jan 14, 2013 4:41PM
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yay lets all give a big congrats to the wealthy for doing what they do best....avoiding taxes, I would GLADLY pay the 27,000 a year if it ment having a 400k a year job. It would sure suck to have to give up the weekend vacations and sellte for monthly vacations instead. meanwhile I work hard all week only to find out in addition to my already small paycheck even more is coming out this year and we just found out in addition to our mandatory 2week layoff a year we are now going to be cut down from 40hours a week to 34.5 hours. Enjoy your "tax victory" greedy fools, in the mean time I will be here living tiny paycheck to paycheck.

 

- The 99%

Jan 14, 2013 7:39PM
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47% of the US voters who were alive on election day voted for Obama.  The other 6% were those illegal aliens he gave amnesty to and the democrats who listed their official address as a plot in a graveyard.  The "press corps" refuse to vett Obama.  They just love the ratings that they get by keeping him in the spotlight.  I am sure that he will remain in the news long after he leaves the White House,  if he ever does so willingly.
Jan 14, 2013 9:34PM
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This is the only country that penalizes people for being married. It is horrible that our government promotes shacking up or as some people call it living in sin. They are they bigggest reason for the decline in family values.
Jan 14, 2013 6:20PM
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Golden Rule baby... and were not talking shower... well - wait - maybe we are......
Jan 21, 2013 12:05AM
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If your combined income is greater than 450 thousand dollars, you will end up paying more taxes if  married.   If you are making 800 grand together why the worry?  You are making more than the rest of the 99%.    All of you blaming Obama or anyone else are stupid.   I doubt any of  you are making 800 thou per year.   If your combined income is below 450 thou there is not difference and go lower and the advantage of being married counts.  For years singles have complained that they are hit because married people get a better deal.  Now that his has finally changed the married ones want to complain.  Taxes cannot get any lower until Americans decide if they want to continue to be the police force for the world.  If you do, then stop complaining.  If you are tired of spending 632 billion dollars per year on the military, then contact your Repub Congress person and complain.  They voted for this defense budget.   They also voted to pay 8 billion dollars for farmers crop insurance.  Actually, they voted for you to pay for the farmers insurance.  
Jan 22, 2013 12:10PM
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So some nitiwt does not mind spending 8 billion dollars to pay for a corporate farmer's crop insurance?   I guess he does not mind giving the oil and gas producers 15% of his money in depletion allowance so the can pay for his gasoline.   What an idiot.   This is why we have a large debt in our govnerment and in our personal finances.  
Jan 14, 2013 5:53PM
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We should dig up all those that voted in the income tax. Then have a bonfire with the bones and piss on them to put it out.
Feb 3, 2013 1:55PM
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Leave it to "family values" Conservatives to put a MARRIAGE PENALTY in the tax code.
Jan 21, 2013 9:59AM
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And we worry about same sex marriage ruining the institution of marriage? Seems like the government is doing that instead. Granted, I don't make even close to $400,000 a year, so I'm not affected by this, but shouldn't this be the other way around if we want to save the institution of marriage? Why not tax everyone the same regardless of marital status? There are plenty of single people living together and not getting married so they can take advantage of things like head of household filing to get a lower tax bill.

Jan 14, 2013 6:11PM
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Better yet...cut her break lines she dies in a fiery crash and collect on the Insurance Policy.

You are so smart and they are so stupid

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