By Teresa Ambord
Imagine going to bed one night a single woman and waking up to find you're married . . . and have been for over twenty years. That's bad enough, but it gets worse. For two decades you and your "husband" have both filed taxes as high-income single filers when you should've filed married joint returns.
Think it couldn't happen? Neither did stand-up comedian Janeane Garofalo. In this case, the joke is on her and long-time husband, Rob Cohen (producer of The Big Bang Theory).
After dating for a year or so back in 1991, Garofalo and Cohen went to Las Vegas. With a few drinks under their belts, they decided to visit a drive-thru for some burgers and fries and a side of marriage. Actually, they said "hold the burgers, hold the fries." But they did get hitched. Somehow they missed the fact that they were, indeed, legally married - for two decades.
Then came the day very recently when Cohen and his fiancé Jill Leiderman (producer on Jimmy Kimmel Live), decided to tie the knot. One problem. That's when Cohen discovered he already had a wife.
The punch line
Garofalo may be a comedian, but according to one family attorney, "Vegas weddings are no joke." Philadelphia lawyer David Crosson told Forbes Magazine that people can "absolutely . . . stay married without realizing it." Even if the marriage were not annulled, he added, the fact that neither party realized they were married would, under the right circumstances, make this problem an easy fix.
He was right. Once they discovered their marital status, the "fix" took only about thirty minutes and the not-so-happy couple was once again two singles.
Can marriage/divorce be a tax planning tool?
The IRS is unclear about whether getting married to save tax is legal or not. Marriage for immigration purposes has been challenged, but not so much for tax-saving purposes. But the tax agency has addressed the practice of divorce as a tax planning tool.
In Publication 17 (2011), Your Federal Income Tax, it states:
Divorce and remarriage. If you obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intended to and did remarry each other in the next tax year, you and your spouse must file as married individuals.
Mark Steber, vice president of Tax Resources for Jackson Hewitt was interviewed by the WSJ.com back in 2009 on this topic. He said then that there was still a point where two-income couples can end up paying more than two single filers.
Based on tax rates in effect at the time of the interview (in 2009), two married partners who jointly earned $150,000 and took the standard deduction could've paid about $500 more than if they filed single. At $200,000 the bill would've been about $787 more. The breakeven point, he said, was $132,000 in joint income.
All done? All through? Not quite. Garofalo may have quickly flushed her status as an M-R-S, but the I-R-S may not go away quite so fast. Since they didn't seem to know they were married, naturally, both Garofalo and Cohen have filed taxes as singles for all these years while both of them made pretty good money. These days, the marriage penalty would only have a minor effect on their tax liabilities. But remember, during most of the legal union, the marriage penalty was in full throttle. That means they would've owed more money than they likely paid.
The marriage penalty - which punished double-income married couples by causing them to pay higher rates - was law throughout the 1990s and still alive and kicking for a few years after that. In 2001, a new bill gave some relief by gradually increasing the standard deduction for married couples to twice that of single filers. But the increase phased in over five years beginning in 2005. That means that for most of their marriage, Garofalo and Cohen probably underpaid their taxes.
Luckily for both of them, the statute of limitations makes it unlikely that the IRS can go back farther than 2008, provided the two of them committed no fraud and both filed their returns on time. So for 85 percent of the time they were married, they probably get a free pass. Would they have to pay more taxes if they amended their returns for the last three years? Possibly, because they are both high earners who would pay more as a married couple filing separate than as two singles.
Well-known divorce attorney Raoul Felder pointed out to New York Post reporters that "the highest tax rate is for married people filing separately." The fact that it was an innocent mistake will play a part. Still, Felder - who handled high-profile divorces for clients like Rudy Giuliani, Martin Scorsese, and Patrick Ewing - said Garofalo and Cohen have no obligation to tattle on themselves to the IRS. Instead, they can probably wait and see what happens. Even if they're audited and end up paying more taxes, the honest nature of the mistake will likely mean they pay no penalty.
There's another argument available to them as well. Under Nevada law, marriages can be annulled because of "mutual mistake." Evidently, it's not uncommon for couples to drink too much and get married, then have it annulled a few days later. Since annulment treats a marriage as though it never existed, they could argue that the IRS should also treat the marriage the same way. One thing we can probably count on: the Garofalo/Cohen marriage fiasco will provide plenty of material for her future comedy routines as well as fueling jokes on Jimmy Kimmel Live.