Popular wisdom holds that our world is shrinking. Travel is faster, and technology increasingly bridges the gap even between people who are physically distant.
But for married couples who live apart much or all of the time, long distances still present unique challenges and pitfalls. Many of these are emotional, but there are a few financial hazards too. Luckily couples can largely mitigate the financial problems, at least, with some careful planning and foresight.
Long-distance marriages are on the rise in the United States. According to the U.S. Census Bureau, the number of married couples who live apart more than doubled between 1990 and 2015. An estimated 3.5 million couples live at different addresses. The causes vary.
A common culprit is divergent professional needs. It has long been expected that members of the military will often need to relocate, sometimes with their families and sometimes without them. Similarly, professors and high-level academics – especially those married to one another – may have to physically split up temporarily in order to secure work in their chosen fields. Danielle Lindemann, research director at the Center for Women and Work at Rutgers, observed that in previous decades, it was often taken for granted that wives would follow husbands whose careers took them to new places, even in households where both partners worked. Today, it is more readily accepted that working women may not want to sacrifice their own professional lives.
Some couples reside at different addresses due to family concerns, too. Parents of young children may not want to uproot them from schools or friends if one spouse’s reason for moving is temporary – for instance, acceptance into a two-year master’s degree program at an out-of-state school. Or one spouse may need to care for aging parents in a situation where it is not practical for both people to relocate. Some couples who live apart report that the first spouse moved, either for professional or family reasons, and the other lingered in order to sell their home – but they found it took longer than expected to find a buyer.
Couples who are married and living apart may be at any stage of life, with a variety of financial circumstances in play. But if couples live across state lines, they should take special care to make sure that they have a handle on their tax situation.
Income Tax
The first order of business for the spouse who moved is to determine whether his or her domicile has changed, especially when splitting time between two states. Domicile and residency are different but related tax concepts. An individual may reside in multiple states, but can have only one domicile – that taxpayer’s fixed, permanent home. Individuals domiciled in a state are automatically considered state residents for tax purposes, which in most cases means the state is entitled to tax that individual’s worldwide income. Given the differences in state tax regimes, this can have major consequences for a couple’s finances.
Consider a hypothetical couple, Jack and Anne. Since their marriage, they have shared a home in Georgia. Anne accepts a job offer in Florida, but Jack is not ready to relocate, because he is helping to care for an ailing parent who lives nearby. They decide that for the time being, Anne will move to Florida but will return to spend most weekends with her husband.
Because Florida does not tax income, it would be beneficial for Anne to establish herself as a Florida resident. She would then only owe Georgia tax on any income she earned in Georgia – possibly none, depending on how she and Jack have set up their finances. However, to effectively re-establish domicile, Anne will need to be aware of several potential pitfalls, especially since Georgia’s tax authorities have a strong motive to prove that she remains a Georgia resident.
The first thing Anne will need to do is to check the residency rules for both Georgia and Florida. State residency rules can usually be found on the website for the state’s department of revenue. Like many states, Georgia has a residency law, which means that individuals who spend more than a certain number of days in the state are automatically residents. (In Georgia’s case, that number is 183 days per any continuous 12-month period.) Therefore, Anne should keep a careful record of any time she spends in the state, along with receipts, travel confirmations and other evidence of her movement. Even if she successfully establishes domicile in Florida, she could end up a “statutory resident” in Georgia and still owe tax on all of her income.
Apart from actual presence in a state, the other major factors in establishing a change in domicile are demonstrating an intent to remain in the new state and an intent to abandon a former domicile. These are harder to prove than physical presence, and there is no one factor that tax authorities consider conclusive. Given that Jack remains in Georgia, Anne will likely have to work especially hard to prove her intentions, but doing so is not impossible. Potential steps might include moving her voting registration and voting in local elections; changing the address connected to her personal bank and investment accounts; changing her driver’s license, car license and registration; establishing relationships with professionals such as doctors or accountants in Florida; or updating any professional licenses she might hold. While no one action will make or break a domicile claim, taxpayers are wise to offer as much evidence as possible to tax authorities.
If Anne is in a position to make a convincing argument for Florida domicile and doesn’t trigger statutory residency in Georgia, she may not need to file a Georgia state income tax return at all. (If she has income sourced to Georgia – or any other state – she will still need to file a return there as a nonresident.) Assuming Anne files as a nonresident or does not file in Georgia at all, Jack will need to file his state return as “married filing separately,” even if he and Anne file a joint federal return. To do this, Jack will likely need to prepare a mock “married filing separately” federal return if he is preparing his own taxes. He will not file this mock federal return, but will use it to prepare his state return so that only his income and his half of the federal deductions are included.
In some cases, the resident spouse may still want to file a joint return, in order to secure more favorable rates, or particular credits or deductions. However, certain states require spouses living in different states to file separately. It is best to consult a tax expert about the most beneficial way to file if you are unsure, but at a minimum, you should make sure you know what your home state legally requires.
You may not be able to avoid filing for both spouses, regardless of residency concerns, if either of you are domiciled in a community property state. Such states may require you to share and then split family income evenly. If either spouse lives Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington state or Wisconsin, both individuals should take special care to understand the rules. This may be a case where you are better off consulting a tax professional; at the very least, the situation will require careful research.
If either spouse must file as a nonresident, either because of community property rules or to report income sourced to the nonresident state, couples should also check for any reciprocity agreements between the states in question. Some states have agreements that allow workers to pay taxes only where they live, not where they work, which can be valuable when tax rates vary significantly. Whether such agreements apply will depend on a couple’s particular situation, but it is important to make sure you know what options are available.
Other Tax Concerns
Wherever you live, you should be aware of particularly sensitive areas of state tax law. These matters will be specific to the state or states involved, but can end up being costly if you navigate them incorrectly.
For example, in Anne and Jack’s case, the couple will have to take care if Anne plans to claim a homestead exemption on her Florida residence. Because the exemption is a valuable one, Florida tax authorities tend to take fairly aggressive positions as to who is eligible to claim it. Florida allows only one homestead exemption, either inside the state or elsewhere, per individual or “family unit.” In a 2016 court case, a wife claimed an exemption on a home she solely owned in Florida, while her husband claimed a homestead exemption for a home he solely owned in Indiana. Each spouse was a legal resident of the state where they claimed their respective exemption. However, the courts found that because the couple comingled their finances, the wife was receiving the benefit of her husband’s exemption, even though she did not jointly own his Indiana house. Therefore, instead of claiming homestead exemptions in both states, Jack and Anne likely will need to work out which exemption is more valuable and forgo the other one.
Especially for long-term separations, you may also need to consider the potential impact on your estate planning. While any plans based on the federal gift and estate tax need not change, some states impose their own estate or inheritance taxes. Jack and Anne are lucky; neither Georgia nor Florida imposes such a tax. But 12 states and the District of Columbia impose estate tax, and six states impose an inheritance tax. (Maryland has both.) Washington state levies an estate tax and is also a community property state, which could complicate planning even further. It is smart to discuss your plans with your attorney, your financial planner and any other professionals you have involved in your estate plan to keep them up to date with your dual residency. They can warn you about any potential issues ahead of time and suggest methods for working around them if possible.
Couples sometimes must make hard decisions, and these can often include the choice to live apart for a couple of years, or even longer. But with some thoughtful planning, their finances don’t need to become one more source of stress in navigating a long-distance marriage.
