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Couples consider ‘strategic divorce’ to save on taxes

On Behalf of | Nov 11, 2019 | Divorce

One of the most awkward questions one could ask their spouse is if they wanted to separate to save money. This strategy is something a handful of wealthy couples who want to lower their tax bracket.

But the rich aren’t the only ones considering this move. In fact, other couples who aren’t as well-off are finding it might be financially smart to amicably divorce.

It can allow people to qualify for government assistance

While the wealthy may try to use divorce to avoid paying higher taxes, others may do so to lower their medical costs. For example, someone who has fallen ill might have too much in assets to qualify for Medicaid if they’re married. But if they decide to divorce, meeting Medicaid requirements could be a possibility.

Couples may also do this to financially support their kids in school. In many instances, the parent who has custodial rights over the child is responsible for helping them fill out their FAFSA. If the custodial spouse has a significantly lower income than the other, this can help the child get more money for schooling.

It can still cause problems in other areas

Despite the benefits, strategic divorces can still cause financial setbacks for couples in other areas of their marriage, including:

  • Retirement benefits: If the breadwinner in a divorce had access to joint and survivor benefits, they might have to pay their spouses a sum upon retirement.
  • Health insurance: In many instances, one spouse is working so that they can get health insurance for everyone in the family. In the worst-case scenario, one spouse may end up paying full health care costs from their ex’s employer.
  • Business interests: If one spouse owns a business, they may have to give up full control of it in separation proceedings, even if the split was amicable.

Whether divorces are mutual or not, spouses in Illinois looking to separate may want to seek legal advice. In many cases, a family law attorney can help couples reach an agreement that satisfies both parties.