Dear Rick:
I have a couple of different questions that I hope you can help me with. My situation is I’m in my early 50s and was divorced earlier this year. I was married for over 25 years and during that time period we always filed a joint return. Last April my husband and I did file for an extension for our 2017 tax returns. My now ex-husband says that we have to file a joint return since we’ve always filed a joint return since we were married. My divorce was difficult to say the least and I don’t trust him nor do I want to do anything that would help my ex-husband. However, I don’t want to be pennywise and pound foolish. My first question to you is do I have to file a joint return? You should know in 2017 I did not work and, in fact, I’ve been told I don’t even have to file a tax return because I earned no money. My second question deals with my IRA. As part of a divorce settlement a portion of my husband’s IRA was transferred to me. Since I didn’t work this year and have no income for 2018, do you think it would make sense to convert my IRA into a Roth IRA. I read some of your columns in the past and that is where I got the idea; I’m just not sure if I’m eligible.
Thank you.
Tanya
Dear Tanya:
You are under no obligation whatsoever to file a joint return. It doesn’t matter what you did in the past; every tax year stands on its own. Therefore, if you choose not to file a joint return you are well within your rights. In fact, I think it is a good idea that you don’t file a joint return. Remember, one of the issues when you do sign a joint return is that you’re attesting to the honesty and accuracy of the return. Since you don’t have confidence in your ex-husband, it would seem to me the prudent thing to do is to not file a joint return. After all, if he plays some games on the tax return, you can be held liable because you signed the return. Therefore, since there is no benefit for you to sign a joint return and there are only potential problems, I agree that a joint return is not the way to go.
With regard to converting your existing IRA into a Roth IRA, you are eligible and yes, I think it is a great idea. After all, currently you are in a no-tax bracket situation. Therefore, you can convert a significant amount of money tax free. I think it is a great idea and something that you should take advantage of. After all, if you can convert tax-deferred money and tax-free money at no cost or very little cost, why not?
It is important to remember that Roth conversions must be completed before the end of the year. Although, there’s still plenty of time to do a Roth conversion, you don’t want to wait too long. IRA custodians get very busy near the end of the year and thus, my advice is if you’re going to do a Roth conversion, there is no time like the present.
When someone gets divorced, it is also important that people look at their estate planning documents and determine if any changes are needed. Not only in things like wills and trusts, but also in powers of attorney. It is important that you review your medical and durable power of attorneys and make adjustments where necessary. In addition, when someone gets divorced it is also a good idea to change PINs, user IDs and pass codes.
Something that slips through the cracks many times in divorces is beneficiary designations. When you have a change in a family situation such as a divorce or even a death, it is important to review your primary and secondary beneficiaries. After all, you don’t want a situation where something happens to you and an ex-spouse is the one who inherits your money. Therefore, when you do go through a divorce or changes in family dynamics, it’s important to review your primary and secondary beneficiaries.
One last note, remember when it comes to your investment portfolio the strategy that you followed when you’re married does not necessarily mean that it’s the same strategy you should follow when you are single. As far as I’m concerned, when someone gets divorced they need to relook at their goals and objectives and risk tolerance level and design a portfolio that works for them and only them.
Good luck!
If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.