The Law Offices of H. Jacob Lager

GETTING MARRIED OR DIVORCED

What is the "marriage penalty"?

Generally, the so-called "marriage penalty" exists when the tax on a couple's joint return is more than the combined taxes each spouse would pay if they weren't married and if each filed his or her own single or head of household return. This will occur when the couple's combined taxable income is pushed into a higher marginal tax bracket than would apply if the couple wasn't married. The marriage penalty most frequently applies where both spouses work and have relatively equal incomes.

Although Congress has moved to provide relief from the marriage penalty in the tax rates, those changes (expansion of the joint filer 15% tax bracket to twice that of the single filer's 15% bracket) don't take effect until 2005 and won't be fully phased-in until 2008. Even then, the recent changes won't completely eliminate the penalty.

In addition to the marriage penalty, other tax provisions may have the effect of penalizing married taxpayers. Some of these include a possible loss of some of a couple's itemized deducitons, a smaller standard deduction, a possible loss of some of a couple's personal exemptions, a lower capital loss deduction, and a reduced passive activity loss deduction for certain real estate investors.

On the other hand, tax can sometimes be lower for a coule where there is a notable difference between their their earnings. If you would like to discuss how an upcoming marriage may impact your tax situation, please contact our office.

Can I deduct my alimony payments?

Generally, alimony payments are deductible only if they meet the following requirements:

• The payment must be re quired by a divorce or support decree or a written separation agreement. The payment may not be voluntary.

• The payment must be in cash. The payment may be paid either directly to the spouse or can be paid on the spouse's behalf under the terms of an instrument to cover an expense such as rent or the mortgage.

• The payment must be required to stop when the spouse dies. If the payments stop at the time the former spouse remarries, this requirement will not prevent deductibility. Nor will it be required.

• You must be living apart from your spouse.

• The payments must be distinguished from payments for child support, which are not deductible. This includes payments designated as "alimony" but which are linked to a contingency relating to a child. For example, if the "alimony" required to be paid monthly is $1,000, but drops to $500 when the child reaches the age of 18, the “extra” $500 a month will be treated as nondeductible child support.

Getting your spouse to agree to alimony payments instead of child support payments can reduce your taxes dramatically. However, because alimony will be included in the spouse's taxable income while the child support will not, this will likely be a subject for negotiation.

If you would like to discuss how an impending marital dissolution may impact your tax situation, please contact our office.

The Law Offices of H. Jacob Lager
1601 Cloverfield Blvd.
Second Floor, South Tower
Santa Monica, CA 90404

(310) 471-8773 phone
(310) 943-1545 fax

Email: jake@lagerlaw.com

The information available on this website is meant to provide general information and does not constitute any advice relating to your particular situation.