EP 18: How To Understand & Handling the Fiscal Impact of Life's Biggest Changes (Marriage, Divorce, Children)

What if tying the knot could knot up your finances, too?

This episode of Common Sense Millionaire peels back the layers on how life-altering events such as marriage and divorce, could impact your finances. We’re taking a deep dive into the potential tax implications of that walk down the aisle - think merging credit files, determining to file taxes jointly or individually, and even the tax burdens you might unknowingly be stepping into with your partner. And don't worry, I've got our same-sex couples covered too.

I'll also spotlight an essential safety net: innocent spouse relief. It's a lifeline for those blindsided by their partner’s financial fiascos.

Switching lanes, we're going to dissect the financial fallout from divorce. Enlisting a tax specialist or attorney when navigating separation is crucial, especially when it involves determining child allocation for tax purposes. It's a complex path, but I'm going to be here to guide you through it without adding to your financial strain. 

I trust you'll walk away with valuable insights to help you brave life's financial storms. And remember, I'm always here to tap into questions or concerns, so don't hesitate to get in touch.

Thank you for listening to The Millionaire Mindset Podcast with George Dines.

To connect with George visit www.georgedines.com

To Schedule a call with George visit: https://georgedines.com/contact/

Transcript

Speaker 1: 0:02

Welcome to the Common Sense Millionaire, where we work to promote your financial advancement in knowledge process and education so that you and your family become financially secure. This is the place I share Common Sense Action Steps that you can take today to assist your financial advancement. So sit back, grab a drink and let's get started. Common Sense Millionaire here, thanks for joining us. Previously, I talked about tax planning, and that discussion was somewhat general in nature. There were some details that were provided on areas that we need to look at. At the same time, there were some other issues that we need to directly address that really necessitate a serious tax planning exercise, and that would be tax planning for what I call life events, and that would be marriage, divorce and children. So let's talk about marriage, for instance. Nowadays. This is extremely important because really for the first time in really history, if I can put it that way, when a couple is getting married and now they tend to be getting married a little bit later and both are employed or have some type of experience in the employment world, be it positive or negative. So it's important to understand that once you get married, from a tax perspective you can file either as joint, which is both husband and wife together, and also you can file as married, filing separately. You can do that as well. Now, this is also not just for heterosexual couples, it's for gay couples as well, because these gay marriages are increasing. So you're going to have the same issues from a legal perspective as you would with a heterosexual couple getting married. So what the heck can cause tax planning madness for marriage? One thing is that one of the couple could be financially responsible and everything is fine. Where the other part of the couple may have some financial issues, and those things have to be discussed because do you want them to come together? If all those issues come together, then at the time of marriage, both of those are part of each of both of those people joined together. If they're filing married separately, then everything stays with whom it belongs to, and that's a very important aspect because the tax planning has to take that into account. Getting credit files merged together that's another issue for the tax planning side.

Speaker 1: 3:16

All right, so people don't talk about these things. These are very important issues to bring up and a lot of times people don't want to talk about it because it might bring conflict into the relationship. And whenever we have these discussions and I talk about them. I talk about myself and the struggles I've had in the past as well, and prior to getting married I really actually disclosed everything that was going on and basically what my plan was going to be to fix it. Okay, that doesn't always happen. So as a tax professional, I have to make sure that I hone in on what the issues are for married couples to try to make sure that they move forward in the right direction either married filing jointly or married filing separately. There's also another issue that can come up. There's the innocent spouse relief, where if one of the married folk feels like they were lied to or they were not properly represented, they can indicate to the IRS that they should not be responsible for the other spouse's liabilities from a tax perspective because they didn't tell me X or they didn't tell me Y, so I'm an injured spouse and that's really not the way that you want to move forward in a relationship.

Speaker 1: 4:43

The second tax planning issue is going to be for people who are divorced or in the process of getting divorced. Now, typically it's very hard to have these discussions okay with both people understanding the tax implications of the divorce, but it's also a problem because maybe one couple has someone who understands and the other couple doesn't, unless it's an attorney. So things that are covered under the law are all put on the table and described to each individual and they understand that. But it's the intangibles out there that happen. What happens to so-and-so's school debt or any other debt that was acquired jointly? How is that going to be allocated? There are probably legal rules for that. I'm not a divorced attorney, I don't know what that is, but somehow there's got to be working relationship between the two in order to make it go smoothly, so that neither one feels that there's a whole bunch of liabilities that have been dumped on them but not on the other spouse. So that's a tax planning situation as well, in terms of if you've got to make debt payments that you weren't expecting to make, then we have to make sure that that's included so that you know basically at the end of the year, how much net cash do you think that you're going to have on hand to take care of the liabilities in your life and what you need to do in your life.

Speaker 1: 6:10

The other is kids. We had a brief discussion about this before in terms of arguments or discussions about who gets what kid. You've got three kids. How do you divide three kids into two people? That's a little difficult. So how do you negotiate that?

Speaker 1: 6:29

The planning aspect comes into whether or not who has what child and whether or not they are able to provide the tax advantage of taking care of and being the parent that is, you know, taking care of the kids on a daily basis. That is something that's a big deal. Some couples I've seen have been able to negotiate through this and allocate. You know you get one kid, I get one kid. That kids with you know saw in the books is done from a paperwork perspective, so that everything is laid out properly and there's no problem with your return. All of this ties back to things I've been talking about previously, especially when you're looking at audit information. Remember, the IRS is keying in on dependent activities, where dependents are going, who's getting a particular dependent and what benefits are you claiming for that dependent that unit may not be responsible for. So that's very important.

Speaker 1: 7:36

That can also be a difficult discussion to have, because when I have a situation where the judge signed something but nobody ever discussed with the couple what the situation was going to be and what the tax implications of a document they signed were. That can cause a lot of problems. That's a major planning issue as well, especially because you know you may be getting some money back as a refund on that and you know if you're not negotiating right then you end up with nothing, because maybe one of the spouses ends up with all of the kids. So that's life events situation. That's the probably the worst one. Then, of course, the other one is the house. How does that get taken care of? Maybe, since no decision can be made, the house has to be sold If there are kids involved. I would make a guess that if the mother of children maintains primary custody of those kids, then you know the other spouse will have to provide support to maintain the house, which means money for the note, maybe also gardening activities or other activities, you know, relating to the home.

Speaker 1: 8:58

Now, the best situation and I've been in a situation where I've been able to talk to both of the folk who were getting divorced with kids to work through on an amicable basis what was going to happen to them that does not always happen. So it's very important again to let your tax professional or your attorney know that you need to have some kind of discussion about what the impact of taxes are on the family and the divorce. So if you have any questions, feel free to give me a call, be glad to help out and I'll see you all soon. You.