Increasingly, married individuals are “Living Apart Together” or “LAT,” as it is commonly referred to in sociology circles. Surveys, studies and personal interviews suggest several reasons (other than impending divorce) why couples are deciding to maintain separate households, sometimes thousands of miles apart. Tax implications are just the tip of the financial iceberg. Today’s blog takes a high-level look at this phenomenon.
The previously mentioned surveys and interviews captured a few key reasons for maintaining separate households, but the spectrum of possibilities is endless. Here are a few:
- Academic professionals, such as doctoral or graduate candidates, moving to new states or countries to participate in programs
- Adults with elderly parents requiring care in states outside their retirement destination
- Maintaining rent-controlled dwellings in urban cities during temporary work relocation of one spouse
From a tax perspective, married filing separate versus married filing joint may have significantly different outcomes. Separate filing status requires both individuals to take the standard deduction if one spouse is not eligible to itemize; credits, deductions and limitation thresholds are usually reduced, and tax rate differences often see married filing separately taxpayers paying more tax than if they filed jointly. However, just because you live in separate dwellings does not mean you must file separate federal tax returns. You may, however, have to file separate state returns due to statutory residency rules in different states. Consult with your tax advisor to determine the most advantageous filing status.
For those considering or in the process of divorce, economic and financial factors could make living apart more feasible in the short or long term. For example, employer-covered health insurance may be offered for married spouses but not former spouses. Divorced spouses are entitled to the greater of their own social security benefits or 50% of their former spouses benefits if they were married for at least 10 years. For lower-earning spouses, it may be better to leave the relationship but keep the title until the 10-year threshold is passed.
Divorcing couples considering the LAT life should be cautious of spendthrift ex-partners and aware of shared responsibility of debt. Partners with excessive spending habits could create debt for both parties and impact credit scores of both individuals. Estate planning in the future could be derailed by decedents who never officially divorced after years of separation.
There are no easy, or black-or-white answers when it comes to LAT living. Like most tax situations, each case is unique and must be managed based on its own facts.
The Tax Warriors® at Drucker & Scaccetti are here to help! Call on us to help you strategize and plan your unique situation in the most financially sensible and tax-efficient way. Our practice group that addresses the structures and financial challenges of today’s modern families is uniquely positioned to advise on the matter.