Texas spouses who are on the path to divorce often focus on the personal reasons for their shift from married to single. While it is true that there are a number of challenges that can arise during the process, there are also a range of benefits, both emotional and financial. For example, recent changes to existing tax laws now mean that in many cases, taxpayers who are approaching divorce will enjoy significant savings the next time they prepare their tax return.
One change involves those who sit at the top of the income range. The recent fiscal cliff deal changes the tax rates of the top 1 percent of the population, and rate hikes favor single taxpayers over married couples. At an earnings level of $400,000, single individuals will enter the 39.6 percent tax bracket. Their married counterparts only get an additional $50,000 cushion before they reach the same rate. In addition, the highest tax rates on dividends and capital gains jumps from 15 percent to 20 percent at the same earnings levels.
Another change is the loss of as much as 80 percent of one’s itemized deductions as well as the sum total of their personal exemptions. This kicks in when one’s adjusted gross income surpasses $250,000 for singles and $300,000 for couples. The math here is simple: high-earning couples will fare significantly worse by filing as a married couple than they would as single individuals. For those who would try to file separately, such a move would not make any difference, as only ‘single’ filers will qualify for the lower thresholds.
This is just one aspect of divorce that can make a significant impact on one’s bottom line. When moving toward divorce, one of the smartest financial moves possible is making a comprehensive determination of the financial changes that are expected to occur. Having these numbers in place allows each party to make savvy decisions during the negotiation portion of the Texas divorce process.
Source: Forbes, “Want To Save On Taxes? Get A Divorce,” Tony Nitti, Jan. 22, 2013