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/

Episode Transcript

Speaker 1 (00:02):
Welcome to the Common Sense Millionaire, where we
work to promote your financialadvancement in knowledge process
and education so that you andyour family become financially
secure.
This is the place I shareCommon Sense Action Steps that
you can take today to assistyour financial advancement.
So sit back, grab a drink andlet's get started.

(00:23):
Common Sense Millionaire here,thanks for joining us.
Previously, I talked about taxplanning, and that discussion
was somewhat general in nature.
There were some details thatwere provided on areas that we
need to look at.
At the same time, there weresome other issues that we need
to directly address that reallynecessitate a serious tax

(00:47):
planning exercise, and thatwould be tax planning for what I
call life events, and thatwould be marriage, divorce and
children.
So let's talk about marriage,for instance.
Nowadays.
This is extremely importantbecause really for the first
time in really history, if I canput it that way, when a couple

(01:11):
is getting married and now theytend to be getting married a
little bit later and both areemployed or have some type of
experience in the employmentworld, be it positive or
negative.
So it's important to understandthat once you get married, from

(01:33):
a tax perspective you can fileeither as joint, which is both
husband and wife together, andalso you can file as married,
filing separately.
You can do that as well.
Now, this is also not just forheterosexual couples, it's for

(01:54):
gay couples as well, becausethese gay marriages are
increasing.
So you're going to have thesame issues from a legal
perspective as you would with aheterosexual couple getting
married.
So what the heck can cause taxplanning madness for marriage?

(02:16):
One thing is that one of thecouple could be financially
responsible and everything isfine.
Where the other part of thecouple may have some financial
issues, and those things have tobe discussed because do you

(02:41):
want them to come together?
If all those issues cometogether, then at the time of
marriage, both of those are partof each of both of those people
joined together.
If they're filing marriedseparately, then everything
stays with whom it belongs to,and that's a very important
aspect because the tax planninghas to take that into account.

(03:05):
Getting credit files mergedtogether that's another issue
for the tax planning side.
All right, so people don't talkabout these things.
These are very important issuesto bring up and a lot of times
people don't want to talk aboutit because it might bring

(03:26):
conflict into the relationship.
And whenever we have thesediscussions and I talk about
them.
I talk about myself and thestruggles I've had in the past
as well, and prior to gettingmarried I really actually
disclosed everything that wasgoing on and basically what my
plan was going to be to fix it.
Okay, that doesn't alwayshappen.

(03:47):
So as a tax professional, Ihave to make sure that I hone in
on what the issues are formarried couples to try to make
sure that they move forward inthe right direction either
married filing jointly ormarried filing separately.
There's also another issue thatcan come up.

(04:08):
There's the innocent spouserelief, where if one of the
married folk feels like theywere lied to or they were not
properly represented, they canindicate to the IRS that they
should not be responsible forthe other spouse's liabilities

(04:29):
from a tax perspective becausethey didn't tell me X or they
didn't tell me Y, so I'm aninjured spouse and that's really
not the way that you want tomove forward in a relationship.
The second tax planning issue isgoing to be for people who are
divorced or in the process ofgetting divorced.

(04:51):
Now, typically it's very hardto have these discussions okay
with both people understandingthe tax implications of the
divorce, but it's also a problembecause maybe one couple has
someone who understands and theother couple doesn't, unless
it's an attorney.
So things that are coveredunder the law are all put on the

(05:12):
table and described to eachindividual and they understand
that.
But it's the intangibles outthere that happen.
What happens to so-and-so'sschool debt or any other debt
that was acquired jointly?
How is that going to beallocated?
There are probably legal rulesfor that.

(05:32):
I'm not a divorced attorney, Idon't know what that is, but
somehow there's got to beworking relationship between the
two in order to make it gosmoothly, so that neither one
feels that there's a whole bunchof liabilities that have been
dumped on them but not on theother spouse.
So that's a tax planningsituation as well, in terms of

(05:54):
if you've got to make debtpayments that you weren't
expecting to make, then we haveto make sure that that's
included so that you knowbasically at the end of the year
, how much net cash do you thinkthat you're going to have on
hand to take care of theliabilities in your life and
what you need to do in your life.
The other is kids.
We had a brief discussion aboutthis before in terms of

(06:17):
arguments or discussions aboutwho gets what kid.
You've got three kids.
How do you divide three kidsinto two people?
That's a little difficult.
So how do you negotiate that?
The planning aspect comes intowhether or not who has what
child and whether or not theyare able to provide the tax

(06:43):
advantage of taking care of andbeing the parent that is, you
know, taking care of the kids ona daily basis.
That is something that's a bigdeal.
Some couples I've seen havebeen able to negotiate through
this and allocate.
You know you get one kid, I getone kid.
That kids with you know saw inthe books is done from a

(07:05):
paperwork perspective, so thateverything is laid out properly
and there's no problem with yourreturn.
All of this ties back to thingsI've been talking about
previously, especially whenyou're looking at audit
information.
Remember, the IRS is keying inon dependent activities, where
dependents are going, who'sgetting a particular dependent

(07:28):
and what benefits are youclaiming for that dependent that
unit may not be responsible for.
So that's very important.
That can also be a difficultdiscussion to have, because when
I have a situation where thejudge signed something but
nobody ever discussed with thecouple what the situation was

(07:52):
going to be and what the taximplications of a document they
signed were.
That can cause a lot ofproblems.
That's a major planning issueas well, especially because you
know you may be getting somemoney back as a refund on that
and you know if you're notnegotiating right then you end
up with nothing, because maybeone of the spouses ends up with

(08:14):
all of the kids.
So that's life events situation.
That's the probably the worstone.
Then, of course, the other oneis the house.
How does that get taken care of?
Maybe, since no decision can bemade, the house has to be sold
If there are kids involved.

(08:34):
I would make a guess that ifthe mother of children maintains
primary custody of those kids,then you know the other spouse
will have to provide support tomaintain the house, which means
money for the note, maybe alsogardening activities or other

(08:55):
activities, you know, relatingto the home.
Now, the best situation and I'vebeen in a situation where I've
been able to talk to both of thefolk who were getting divorced
with kids to work through on anamicable basis what was going to
happen to them that does notalways happen.

(09:16):
So it's very important again tolet your tax professional or
your attorney know that you needto have some kind of discussion
about what the impact of taxesare 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 seeyou all soon.
You.