In the lead-up to the 2020 presidential election, people in California and across the country are debating tax policy, especially the level of taxation imposed on people in the highest tax bracket. At the same time, some wealthy people are considering options that would allow them to retain a greater share of their income. One of these potential options is “strategic divorce,” which is when an otherwise happy couple divorces in order to take advantage of a taxation gap between the highest bracket at 37% for two single people paying separately as opposed to one married couple.
In most cases, wealthy couples are unlikely to choose divorce to save on their income tax bills, especially since the cost of dividing marital property and other divorce matters is easily likely to exceed the tax savings, even for amicable couples. However, people of more modest means may be prompted to think about strategic divorce to address more desperate concerns. Parents who want to help their children pay for college in an era of rising university tuition and fees may want to divorce to take advantage of a difference in how financial aid is provided.
Financial aid assessments are based on the custodial parent’s income alone. Therefore, couples who may find themselves ineligible for some forms of aid may want to divorce to establish the lower earner as the custodial parent, giving their children a leg up before their financial aid eligibility is determined. Other families may think about strategic divorce for Medicaid eligibility, especially for long-term nursing care for a person with dementia or another terminal illness.
Of course, there are complex financial consequences that can accompany any divorce. A family law attorney may provide advice on property division, spousal support and other legal matters while working to help divorcing spouses reach a fair settlement.