Divorce for tax reasons

We are considering getting divorced for tax reasons. We live in Washington, a community property state.

We filed married filing separately to be able to keep one party's income based repayments on their student loans as low as possible. The other party did not benefit and in fact had to lose out on some tax advantages due to this filing status.

Since there is $110K in student debt and no option to pay it off quickly (neither party is wealthy), we are anticipating having to continue to file married filing separately for many, many years to keep the income based repayment income figure low for the party working to pay off the student debt - and thus the other party will lose out on their tax advantages for all those years, because married filing separately in Washing state is probably the most disadvantageous filing status one can choose.

The question is in regards to insurance implications. If a couple divorces for tax purposes, can the other person remain covered by a corporate health plan in the same manner?

Any advice or experience around this topic would be sincerely appreciated.

Thank you

Reply to
Francis
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If this is primarily about federal tax, my understanding is that Washington has a domestic partnership law that allows for all the rights and responsibilities of marriage under state law, but the partners are considered unmarried under federal law.

In California heterosexual couples are allowed to be domestic partners if one is over age 62. I don't know the Washington rule on this.

On the other hand, since the Supreme Court said that marriage has to be open to same-sex partners, the same reasoning should apply to allow heterosexual couples to be domestic partners as well.

If you can dissolve your marriage and become domestic partners, that should solve the work benefits issue.

My understanding is that this may also help some couples when they retire, because they may get greater social security payments if they are considered unmarried.

Reply to
Stuart Bronstein

On the other hand, would the IRS look upon this a sham?

Reply to
taxed and spent

They could try. But their normally approved ways of recharacterizing income don't apply in this case. Couples have divorced for tax reasons in the past, and I don't remember seeing anything from the IRS that tried to recharacterize any of their incomes. The next step is domestic partnership, which is of purely state law concern.

Reply to
Stuart Bronstein

While I am not an expert on Washington CP laws, I understand that when a married couple are not living apart in WA and there is no pre-nup nor post-nup that makes all income separate, then your income is community. If you file a federal return as married separate, then all community income must be split 50 - 50 on your separate returns. Is that what you did? Or... did you treat all your income as separate on the MFS returns?

Reply to
Alan

People divorcing for tax reasons is one thing. People divorcing for tax reasons and cohabitating is another thing, perhaps difficult to prove. People divorcing for tax reasons and then jumping into a documented domestic partner situation sure smells like a sham to me. Will the IRS bother? Perhaps not, as they are too busy going after the people that pay the bulk of the taxes.

Reply to
taxed and spent

This is a situation where there is an actual change in legal rights.

to reduce their taxes while still enjoying some right of marriage.

The IRS can't recharacterize income just because they want to or they are suspicious. They have to have a specific legal basis to do that. I am unaware of a legal basis that would allow them to characterize income in this specific situation.

Reply to
Stuart Bronstein

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