patrick.net

The financially arranged marriage transfer doesn't really work all that well. This loophole is no good for income tax, since that would already be paid. There's already a gift exemption of $12K per person per receiver per year (that means if you had 10 grandkids and is still married to your spouse, you can give them a total of $240K a year!), and there's lots of gift and estate planning opportunities without going into engineered marriages for asset transfer.

Then there's a high level of moral hazard for any would be spouse/intermediary. They can just take the money and run.

Astrid,

Thanks for the tip on Price. Any other good primer you can recommend? I'm planning to draft a trust for my wife and and I.

I might hire an expert but want to refresh my memory on the basics first. I need to start back at square one.

But that's what Garth and I could engineer away. Using deposit certs, housing futures, and lots of other nifty stuff you could ostensibly engineer a financial obligation equivalent to the going fair market value of "your stake" in the arrangement. And, it seems, all of this would be on the border of legality. It would be arm's length, have a valid business and personal purpose, and provide risk-reward benefit to all participants.

Garth and I need to have a beer then consult some shrewd attorneys.

Garth,

I think you're a practicing lawyer so this will be easy, go to a local law library and ask the reference librarian about their estate planning material. The most useful stuff will probably be published by the California bar and ABA.

I wouldn't recommend drafting a trust agreement yourself, you really should have someone who knows the state of the art on the matter. You can use the forms if you do a simple trust, but even then, it's worthwhile to pay a practioner to read over your docs. My recs on Price is for you to be an educated customer, because there are a lot of paid bad/sloppy drafting out there.

Randy,

I still don't see a scenario where marriage transactions make sense. There are easier ways to buy up assets and transfer money. Could you or Garth come up with a scenario where this sort of transaction makes sense?

SFWoman,

You sound like a Seward Johnson granddaughter :)

Astrid said:

I still don’t see a scenario where marriage transactions make sense. There are easier ways to buy up assets and transfer money. Could you or Garth come up with a scenario where this sort of transaction makes sense?

You know we're joking, right? Even so, I'd bet somebody, somewhere, sometime in California in the last 30 years has gotten married to avoid a reassessment. Those wacky humans do the strangest things.

buffpilot,

what you describe is almost in exsitence in CA, it is called anti-deficiency law. You don't need to pay back the difference in loan amount and the market value of the home if you get foreclosed upon. For example, you bought your house at 1M with 20% down borring 800K, somehow the house tanks to 500K and you cannot make your payment, then you turn over your keys to the bank. If this were an investment home, your bank WILL come after your ass for the difference in the loan amount (800K) and what the bank can get dumping the house on the open market (500K). Under anti-deficiency law, the bank has to eat up the difference itself.

Here is also a catch. Once you refinance, you essentially give up your anti-dificiency right. So if a homedebtor ever HELOC'd, most likely he will not be protected when he defaults on his mortgage payment, ass-biting bank on his tail forever.

Garth,

I thought so, but any real life example of such a transaction would be like the Giffon good of estate planning. So I had to ask.

I heard of a couple who got DIVORCED to mitigate tax obligations. How? Well, both are in investment banking making big bucks. Tax law has it that a household can have two homes for mortgage interest deduction, so they ran the NPV and divorced, living next door to each other with 4 expensive homes under their names for mortgage interest deduction.

I am never amazed at how far humans can go to avoid paying tax. I believe that social behavior is largely tuned by tax law.

Well, marriage is basically a contract backed by the power of the state.

As for your example...well, I see a lot of financially based marriage decisions, especially for health insurance, it was just the idea of using marriage primarily as a means to transfer assets that seems weird.

I am never amazed at how far humans can go to avoid paying tax. I believe that social behavior is largely tuned by tax law.

Flat tax!! Consumption based taxation!!

A marriage is a life-long commitment made in front of God. A divorce is rarely justified. Getting a divorce for financial reason is just incomprehensible.

More Dean Dean Baby, get a good laugh for the weekend

http://www.youtube.com/watch?v=Jfy1cTMyz_E

O.O.: That video stinks. The guys are pathetic. I stopped after first 10 secs. What's so funny about it?

As for leaving something to your children, I thought the English system of primogeniture (by the male line) makes a lot of sense. It's cruel to those who cannot inherit. But life is always cruel.

Regarding good looks in mating and marriage: Looks are very important. But I thought the heiresses could just play the good-looking guys instead of marrying them. Somewhere someone said that the insecure marry down and when they marry down they marry good looks. Stupid.

That's why the freedom of choosing a marriage partner, specially for the upper echelon of the society, should be taken out of the hands of the children. They can have affairs AFTER marriage. Such a practice guards against degeneration of the family line.

From wikipedia:

Arguments in favour of primogeniture:

Primogeniture prevents the subdivision of estates and diminishes internal pressures to sell property (for example, if two children inherit a house and one cannot afford to buy out the other's share). In Western Europe most younger sons of the nobility, having no prospect of inheriting land or property, were obliged to seek careers in the Church, the Armed Forces or in Government. Wills often included bequests to a monastic order who would take the disinherited. Many of the Spanish Conquistadors were young sons who had to make their fortune in war. In the late 17th and early 18th Centuries, many specifically chose to leave England for Virginia in the Colonies. Most, if not almost all, of the early Virginians who were plantation owners were such younger sons who had left England because of primogeniture laws. These Founding Fathers of the United States of America were nearly universally descended from the landed gentry of England, with many being descended from English Kings of the late 14th and early 15th Centuries, especially through the prodigious offspring of Edward III of England. William Shakespeare's King Lear can be seen as an argument in favor of primogeniture as the tragically flawed action of Lear is dividing his country into three amongst his daughters. The division of his land marks the beginning of the unraveling of everything else in the play.

Arguments against primogeniture:

The fact that the eldest son "scooped the pool" often led to ill-feeling amongst younger sons (and of course daughters). Through marriage, estates inherited by primogeniture were combined and some nobles achieved wealth and power sufficient to pose a threat even to the crown itself. Alternately, one might think that, as with most property, the land will go to its most useful purpose no matter what the initial distribution (the Coase Theorem). Finally, nobles tended to complain about and resist rules of primogeniture (though this opposition might indicate primogeniture among nobles was good for the king).

Primogeniture also can lead to less than able successors. See for example Christian VII of Denmark who was likely schizophrenic and Afonso VI of Portugal who was a half-wit.

A marriage is a life-long commitment made in front of God.

My wife and I were married by the County of Cook in the State of Illinois, before a judge. We've already outlasted nearly 60% of our peers, most of whom were married in churches and synagogues.

I know at least 1 couple who got a legal divorce, but still live as if married purely for tax reasons. They have no children, which uncomplicates things tremendously. CA has no common-law marriage rules, also simplifying things. The taxation difference was tremendous, primarily due to AMT rules. AMT strongly discourages dual-income high-earner marriages. I've heard of others getting divorced later in life (after kids have left) in order to tax manage inheritances when one partner is a high earner and the other is nearing a sizable inheritance. Again, AMT is the culprit. And it's not always just AMT earnings, but often high deductions activate AMT, thereby taxing the other partner disproportionately.

If politicians wish to preach to me about the import of maintaining the "sanctity of marriage", then they can go a long way towards proving the conviction of their beliefs by removing existing disincentives. Otherwise, it is nothing but cynical, shallow, political opportunism.

Peter P,

You believe in God and Karma? Far out!

There is much to endorse in a quick elopment. They're kind of like starting out a business. You'd think the one with high bonding costs (big diamond ring and expensive wedding) would last longer (because of high barrier to entry, or something); but in reality, the cheap elopments don't come with the (debt, social, mutual expectation) pressures of high priced weddings and can work out better.

My wife and I were married by the County of Cook in the State of Illinois, before a judge. We’ve already outlasted nearly 60% of our peers, most of whom were married in churches and synagogues.

Religions, churches and synagogues were created by men.

I do believe that internet will have SOME effect in reducing the stickiness. At least part of the buyer pool is well informed and behave cautiosly. I don't think there is any way of quantifying the effect.

The main reason stickiness will be less this time is the credit bubble. We can say whatever we want to on these blogs. But when it starts pinching the pocket, it is far more effective. Wait till the ARMs reset. Then we can see how sticky the home prices are. Wait till people are under water for 2 years, then 3 years and then 4 years. In this age of instant gratification, patience is an unheard virtue. It takes tremendous hard work, strong will and faith in yourself to ride out the bad times. Our social structure is just incapable of handling a slow death of the housing bubble.

I don't think we will have to wait till 2015 to see 50% loss in real terms. Anytime between 2008 and 2010.

There is much to endorse in a quick elopment. They’re kind of like starting out a business. You’d think the one with high bonding costs (big diamond ring and expensive wedding) would last longer (because of high barrier to entry, or something); but in reality, the cheap elopments don’t come with the (debt, social, mutual expectation) pressures of high priced weddings and can work out better.

I agree. The most important thing in a wedding is cost control.

Oh and BTW, can anyone recommend a perma-bull site/blog for housing ? (Apart from CL, if it can be called as such.)

AMT strongly discourages dual-income high-earner marriages. I’ve heard of others getting divorced later in life (after kids have left) in order to tax manage inheritances when one partner is a high earner and the other is nearing a sizable inheritance. Again, AMT is the culprit. And it’s not always just AMT earnings, but often high deductions activate AMT, thereby taxing the other partner disproportionately.

This is why we must do away with AMT. Throw away most deductions! We need a flat tax.

I maintain that marriage is purely an indefinite contractual agreement for raising kids, sharing expenses, and enjoyment of health insurance.

In cases of marriages with one wealthy elderly party and a sexy younger person of foreign extraction, marriage also functions to take money out of the hands of ungrateful/deserving/awesome because she's SFWoman grandchildren and into the younger spouse's extensive "family."

Oh and BTW, can anyone recommend a perma-bull site/blog for housing ? (Apart from CL, if it can be called as such.)

If you read this site in reverse, you will see perma-bull messages.

I maintain that marriage is purely an indefinite contractual agreement for raising kids, sharing expenses, and enjoyment of health insurance.

Marriage is not indefinite. It ends on the natural, physical death of one or both of its participants.

Oh and BTW, can anyone recommend a perma-bull site/blog for housing ?

Try the NAR or CAR's sites. Although they don't have blogs. Actually, I forget who did it (CNN ran the article), but one of those national realtor(tm) orgs opened up a blog for a while that allowed true anonymity. They were very discouraged to find that the PermaBulls suddenly started admitting a hugely Bearish sentiment, when anonymous.

Can someone enlighten me on what CL stands for?

astrid,

I'm with you on this, insofar as society is concerned. The difference with marriage is what the participants wish to make of it, which doesn't really correlate very well with what the state thinks it should be. But then again, I'm a wacko who believes it's really not the state's business except where concerning the best welfare of children.

According to article 2 of the UCC, a contract that terminates by death or divorce is indefinite. Also, a marriage usually leaves other terms of the contract in the air, such as monetary contributions and willingness to participate in household chores, optimal weight status, etc.

Also, sheesh, and what about Mormon marriages? Huh?

craig's list

There are actually a lot of marriages in the lower classes for SSI survivor benefits.

This is why I feel that governments shouldn’t marry anybody, gay or straight. All cities should do is civil partnerships of whomever, and then marriages should be in churches.

I do not usually associate God with churches or even religions.

The government should still record marriage for various legal purposes.

Peter P, the problem is that arbitrary persons would regard my wife and I to not be legitimately married because it did not have the sanctioning of any particular religious body, nor did we in any way acknowledge the domain of any entity other than the State of Illinois (and thereby the other 49) over the union. SFWoman's suggestion would clearly demarcate legal civil unions from any particular religious or spiritual ambitions. No one would have their civil liberties encumbered. The state could still manage that which it has a legitimate interest, and individuals and their families could manage the rest. The problem is that various arbitrary activists enjoy exerting control over the legitimate behavior of others, for fairly random and ever shifting reasons.

SFWoman,

I hope you weren't offended. It was the sexy foreign grandma that really stirred my imagination. :P As someone who has neither rich forebears nor requisit surgical alterations, I maintain strict neutrality over such matters. As a sometime student of trust and estate law, I find these cases fascinating and quite notable for stupidity of lawyers/judges involved.

SQT,

I'm not against marriage. If I had children, I definitely want to have them within marriage. I agree with the general sentiment here, marriage is what you make of it.

SQT,

Good point about advanced medical directives. Ditto a durable power of attorney (if you can really trust your spouse) and handy list of financial information.

Anyone with children really should take time and think about Will/trusts and appointment of guardians for minor children.

Randy H
And, you don’t have to agree with the thesis of mental accounting to recognize the massive body of empirically supporting evidence for the effect. Put it this way, if mental accounting theory is wrong then vegas casinos and state lotteries don’t make any money.

yes. = 'behavioural economics'

I remember seeing Sandra Bullock in an interview and she said she’d always been ambivalent about marriage until her boyfriend was in a bad accident and she realized she had no say in what kind of care he would receive.

that's the thing. by getting divorced as a tax dodge, you are giving up other automatic next of kin rights of marriage such as inheritance, types of control, etc -- unless you carefully recraft wills and so on -- and it means that you trust the partner not to just fly the coop one day -- after all, you aren't even married...

there was a guru/spruiker here who was always going on about tax dodges, all the usual guru stuff about incorporating yourself, etc. he used to advocate giving up permanent employment to become a contractor at the same workplace to save a few bucks on tax dodges and deductions -- and a few of his disciples took his advice -- without thinking of the fact they could then be terminated at any time without reason with no redundancy benefits, that they had no sick leave or personal leave entitlements, etc -- so they had really thrown themselves at the mercy of their employer by trying to be too clever...

We need a flat tax based on consumption.

Not that again. Maybe we need lifelong conscription into the army, that would solve everything. I don't think a flat tax will ever get up without substantial changes to a lot of other things - many govts these days have ended up with a mix of flat taxes and progressive ones - but i don't think govt could raise enough money to keep itself happy if it switched to a flat income tax system...

DS,

yes. = ‘behavioural economics’

You do know Mental Accounting was Richard H. Thaler, right? As in the groundwork which lead to Behavioral Finance as a science. As in one of the fathers of Behavioral Finance. Or do you just like giving me shit for some arbitrarily sadistic reason?

Peter P, the problem is that arbitrary persons would regard my wife and I to not be legitimately married because it did not have the sanctioning of any particular religious body, nor did we in any way acknowledge the domain of any entity other than the State of Illinois (and thereby the other 49) over the union.

Huh? Religions need not be involved in marriages.