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Tracy Stewart, CPA

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Do’s and Don’ts for Boomers Living in Sin

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canstockphoto15145120 Senior Couple on beachAfter a divorce, many Baby Boomers swear they will never marry again. Then they fall in love. In a previous post, Boomers: In your next relationship just shack up, I listed the financial incentives that are fueling the surge in seniors shacking up together. In this post, I will share tips on how to handle your finances when living in sin.

 

Share Household Expenses? Definitely

Many divorces are sparked by the inability to talk openly about money. In your post-divorce relationship, don’t fall into the same trap that got you into that divorce. Make it a priority to go over the money situation once a month. Share the household expenses equally or proportionately based on your respective incomes. Here’s where that joint account comes in handy to pay the bills. You each deposit your share of money to cover expenses and pay for them out of the joint account.

When I say “household expenses”, I am not talking about improvements to the house; fund those by the person who owns the house. Sharing in the cost of remodeling or major repairs can get complicated when one of you passes away first without clearly covering this situation in the estate planning documents. Again, I can refer you to excellent estate planning attorneys in the Brazos Valley.

Mingle Assets & Debt? Nope

When shacking up together, retain separate checking accounts. One joint account is fine as long as you also have your separate account. Do not apply for a joint credit card. Do not comingle debt.

Do not contribute toward the purchase of a major asset that is titled to your partner. Talking about houses, vehicles, boats, airplanes and investment accounts. Ok, if you just have to contribute, be sure your name is also on the title. If you are leasing an abode, get both your names on that lease. No exceptions. Consult with an estate planning attorney. Ask me for the best ones in the Brazos Valley. Do not get yourself into the pickle of co-owning a house with your partner’s mother after your partner tragically and suddenly drops off the perch.

Get a No-Nup? Yep

Ok, it might not be romantic, but get a no-nup anyway. This is a legal document that addresses property division, financial support and debt planning for the possibility that your relationship ends prior to either of you passing on. You want to be clear what will happen to your assets if and when the relationship ends. It is not a DIY project. You will need a family law attorney, so call me if you want recommendations.

 

Boomers: In your next relationship just shack up

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canstockphoto22699599 Happy Older Couple In Park

It used to be called living in sin. It is now socially acceptable and growing by leaps and bounds among boomers. Shacking up is a popular alternative to marriage and divorce, even a nice collaborative divorce. Older people are living together for an average of nine years. Financial reasons top the list of incentives.

Loss of Income. Alimony usually stops when the recipient marries. If you have survivor’s pension benefits, you might lose those if you remarry. If you are receiving a share of your late or former spouse’s Social Security benefits, you could lose those benefits if you remarry before your 60th birthday. If you remarry after age 60 (age 50 if you are disabled), you can collect benefits on your former spouse’s record.

Potential Financial Burdens. In Texas, both spouses are on the hook for most debts incurred during the marriage, regardless of who incurred the debt. Then there is the cost of nursing homes at $5,000 a month in the Bryan College Station area. As a married couple, such costs can devastate the surviving spouse’s financial security.

Tax Disincentives. If each of you has income, as a married couple you could be thrown into a higher tax bracket. As singles living together, you each get $3,000 of capital losses to offset ordinary income, which results in an offset of $6,000 over the two tax returns. As a married couple filing with a joint tax return, you two would only get $3,000 to offset.

Estate Planning Risks. Protecting their children’s inheritance is a big reason Baby Boomers opt to cohabitate. Assure yourself and your heirs that their inheritance will remain intact. Visit with an estate planning attorney before you move in together. Contact me if you need a recommendation for an excellent estate planning attorney in the Brazos Valley.

In my next blog, I’ll give you tips for what to do and what not to do when shacking up. Do’s and Don’ts for Boomers Living in Sin

 

Four Reasons to Have Not-Alimony

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Most people think alimony has to be tax deductible for the payor and taxable income for the recipient. Actually, you can elect to have not-alimony. So why would you want to do that?

  1. When the recipient is in a higher tax bracket than the payor.
  2. The payor will not get a tax deduction because of a lack of current income or their income is non-taxable.
  3. The alimony payments are front-loaded so that the payor would get slammed with excess alimony recapture in later years.
  4. When the alimony is being used for property settlement and the recipient can’t talk the payor into grossing up the alimony checks to cover the income tax on the payments.

Even though a couple can elect-out of taxable alimony, they cannot elect-in to taxable alimony. For payments to be treated as taxable and deductible alimony, the payments have to meet all of a list of IRS requirements.

Broken Agreements in Broken Marriages

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canstockphoto11855421 Broken Promise

Sometimes my College Station divorce clients come to the collaborative case with pre-existing spousal agreements. I am the neutral financial CPA on these cases. That means I am not an attorney and I don’t know the ins and outs of what attorneys do. But I have heard attorneys imply that these agreements don’t survive the entrance to a legal case. (Perhaps those were said by the attorney for the spouse who doesn’t like the agreement.)

By agreements, I am talking about things ranging from promises to give him/her the landscape painting to promises for support payments for “all” his/her living expenses.

If you have any pre-attorney agreements with your spouse, check with your attorney in your first meeting. Be clear about the agreements and what you think both you and your spouse said at the time. Be clear about your current intentions.

  • How will this be handled in my divorce case?
  • I didn’t agree to this, I just kept my mouth shut and now he/she is forcing this on me.
  • He/she promised to pay alimony for life. Can I really get that?
  • Can he/she really get credit for giving me something now that he/she already gave me as a gift years ago?
  • Is this agreement wiped out because we now have attorneys involved?
  • Can I make him/her honor this agreement now that we have started the legal part of this divorce?

In collaborative divorce cases there is a method to talk nicely about these expectations. I have been involved in these discussions dozens of times. It is best to get this resolved up front. Don’t hide from these issues. If you want to keep your costs down and get out as quickly as you can, be assertive about clearing the air on these old agreements.

I would like to hear about any broken agreements that you have experienced in divorce.

Alimony Deductibility

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Alimony payments can be deducted by the payor and included in income by the recipient.

In order for this to work, the alimony must qualify as alimony.

The payments must be in cash, checks or money orders. If payments are to a third party (stated to be such in the divorce decree), the payments can be considered alimony if they otherwise qualify for alimony.

Payments must be required by the decree or separation agreement.

The decree cannot designate the alimony payments as “not alimony”.

Spouses can not be members of the same household (much as they may want to be).

Alimony payments cannot be treated as child support.

Alimony payor is not liable to make payments after the recipient’s death.

Payor and recipient cannot file a joint tax return.