Four Reasons to Consider ‘Strategic Divorce’

Sometimes it may seem like everything about relationships these days is alternative and unexpected, but human beings remain pretty traditional in one sense: We still tend to get married even though we love each other. Millions of people are getting married Each year and each of these partnerships in the United States is an example of optimism. Marriage is not just an emotional commitment, but also a financial and social partnership.

That’s why we care divorce Even though it was a defeat 41% of first marriages finish it this way. Divorce doesn’t just mean that you lose your sense of love for your partner; It also means that your entire life needs to be rearranged, often to your detriment. This is especially true when it comes to money because divorce can have incredible consequences. negative impact on your finances.

But not always; In fact, sometimes divorce positive It has an impact on your finances and it is not unheard of for people to resort to “strategic divorce” to take advantage of these benefits. This isn’t something everyone should consider, but under certain circumstances the best thing you and your spouse can do financially is to get a divorce on paper while remaining together IRL.

Here are four scenarios where a strategic divorce might make sense.

To lower your tax bill

Some married couples are surprised to discover that their tax bills increase after they get married. This is called “marriage penalty” and can make getting married much more expensive than you expected. This doesn’t apply to every married couple, but under certain circumstances, you may find yourself faced with a daunting tax bill; for example, if your total income puts you above the earned income tax credit limit or puts you both in a difficult situation. for example, a higher tax bracket.

This is possible if your marriage has increased your tax bill significantly. A strategic divorce would make sense: You can continue to live your life as a committed couple while enjoying a lower tax bill because you file separately as single individuals. If your tax bill has been shocking since you got married and you think the savings could make the divorce worthwhile, you should talk to an accountant or tax professional first to make sure you understand the complexities and your math works. .

To benefit from the benefits

As anyone who relies on government benefits to survive knows, maintaining your qualifications can be maddening. A significant barrier for many people is income: A little more than the maximum, you may fall “benefits abyss” And lose additional income Even if your new income doesn’t actually meet your needs, you’re confident.

For some married couples, their combined income may exclude them from a wide range of programs, from federal student aid to Medicaid. For example, if one spouse needs to go to a nursing home, they may not qualify for Medicaid because your total income is too high. “A”strategic divorce” may reduce their individual income to a point where they can receive assistance, or it may reduce the custodial parent’s income to a point where your children may receive federal assistance.

To pay medical bills

If you’re facing a slew of medical bills, whether due to a chronic illness, a major accident, or a sudden change in your or your partner’s health, you may need to try what’s known as a “”.medical divorceto provide necessary care. It’s a simple concept: The joint assets of the marriage are transferred to the healthy spouse, and when the divorce is final, the new “single” spouse is qualify for higher benefits. At the same time, assets (home, retirement accounts, etc.) are protected from depletion to pay for necessary maintenance.

When you need to borrow from an IRA

If you have retirement accounts, you know that the money you put there is tax-preferred, meaning it’s not taxed until you withdraw it. However, withdrawing money before reaching retirement age comes with early withdrawal penalties as well as taxes.about 10% amount withdrawn in most cases. This can be a significant bill to pay, especially if you’re withdrawing money early due to a serious hardship where every penny counts.

In an extreme case, a strategic divorce can save you from this penalty. A couple divorcing may involve what is known as an annulment. qualified domestic relations order (QDRO) as part of their settlement. The QDRO divides retirement assets, and withdrawals made as part of the QDRO Exempt from early withdrawal penalties. If you need to take cash out of your retirement accounts without losing 10% on top of everything else, a carefully planned strategic divorce can allow you to do so.