Something to Celebrate

April 15, 2020

Our calendar is full of “Hallmark holidays”: meaningless commemorations and celebrations, usually created by marketers and publicists. Just this month, there’s National Talk Like Shakespeare Day, National Hug a Plumber Day, and National Wear Pajamas to Work Day. (That last one may not feel like a celebration right now). Food fans have National Burrito Day, National Chocolate Covered Cashew Day, and Lima Bean Respect Day. (Two out of three ain’t bad.) Literally every day marks a holiday of some sort. Think of them as participation trophies for the days that can’t be real holidays.

This week marks a special day for those millions of you who found the love of your life, married him or her, and then discovered maybe they weren’t the love of your life after all. That’s right, Tuesday, April 14 is National Ex-Spouse Day. Reverend Ronald Coleman of Kansas City created it in 1987 with the laudable goal of encouraging us to come to terms with our divorces and forgive our exes so we can move on. In our hands, of course, it’s just another excuse for some snarky commentary layered in a thin veneer of tax talk.

To paraphrase Tolstoy, “all happy marriages are alike; while each divorce is unhappy in its own way.” Maybe there were religious differences. (He thinks he’s God; you disagree.) Sometimes it’s like junior-high algebra. (You look at your X and wonder Y.) Joan Rivers quipped that “half of all marriages end in divorce. And then there are the really unhappy ones.” Not to be outdone, Zsa Zsa Gabor once bragged “I’m a marvelous housekeeper — every time I leave a man I keep his house.” (She was divorced eight times, so she got lots of practice.)

In all seriousness, divorce is rarely easy or cheap. Does the tax code offer any relief? Well, it used to be that if alimony was involved, the spouse who paid it could deduct it from their income and the one who got it would report it on theirs. This had the effect of shifting the tax burden on that money from the higher-income income payor to the lower-income recipient. Sadly, the Tax Cuts and Jobs Act of 2017 eliminated that small comfort, effective January 1, 2018. (#Bummer.) Was the Treasury really losing that much money on alimony?

It also used to be true that you could deduct whatever part of your legal fees went towards determining that alimony. The 2017 Act shot that down too, by eliminating an entire category of breaks called “miscellaneous itemized deductions, subject to the 2% floor.” Now, divorce is even more expensive because you’re paying your lawyer with after-tax dollars along with your ex. (Of course, as the classic joke goes: “Why is divorce so expensive? Because it’s worth it.”)

Finally, what about all of those houses, retirement accounts, and other assets changing hands? (There may be more than a few cynics and sociopaths eyeing the recent stock market collapse and thinking “hmmm, if we pull the plug now, it’ll cost me 20% less.”) Finally, some good news! Transfers “incident to divorce” are gift-tax and income-tax free. The tax code also includes something called a “qualified domestic relations order” that lets you divvy up your retirement accounts tax-free. Of course, any gain on that property, including during the marriage, is taxable when you sell.

OK, so, your friends in Washington aren’t interested in making divorce any easier. Hey, at least you aren’t quarantined with your ex!

Don’t hestitate to contact us.

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