Mark Zuckerburg, founder of Facebook, recently married his long-time girlfriend, Dr. Priscilla Chan. Amidst Facebook’s rather disappointing IPO, Zuckerburg and Chan had a surprise marriage at their Palo Alto home on May 19. Fortunately, Zuckerburg is getting married in California, one of nine community property states. Community property states generally apply to the rule that spouses share everything 50/50 after the vows have been exchanged. So if a couple gets divorced, they split everything equally. However, community property also entitles that everything owned by one individual prior to marriage will remain that individual’s property even after the nuptials. This means all of Zuckerburg’s fortune from Facebook is only his property for the duration of his marriage.
This raises the question on what method to file tax returns in 2013. Traditionally, spouses do a joint tax return to save money and simplify the entire process. However, because of this unique situation where one spouse is a billionaire and one spouse just finished medical school, accountants will be scrambling next year to figure out if filing jointly or separately is the best option. However, separate property can be transmuted into community property by a certain action. This could include making a mortage payments on their spouse’s separate property, which would impact the potential advantage to filing as “married filing separately.” It would be safe to assume Zuckerburg and Chan signed a Pre-nup as well which would most likely detail the events of a divorce and allocation of property.
Estate planning can be quite advantageous for the newlyweds as well. According to Deborah L. Jacobs of Forbes Magazine,
“In a community property state, the total value of your assets when you die includes both your separate property and half the value of any community property. There’s a huge tax advantage here: When the first spouse dies, both halves of the property are entitled to an adjustment in basis to their value on the date of death.
If the property has appreciated, there will be a step-up in the cost basis, which could reduce or eliminate the capital gains tax heirs have to pay if the surviving spouse sells the property – such as the Facebook stock.”
However, a spouse cannot escape estate taxes. With the estate tax increasing to 55% next year, it is imperative for this couple to financially plan for the future. This could include Zuckerburg giving Chan an allotted amount of money tax-free because of the gift tax exemption between spouses.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.