Getting back together after 3 years of separation- lots of financial questions

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y4rivera
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Joined: Fri May 26, 2017 7:20 am

Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

Background:
So about 3 years ago my wife and I separated. We have a 13 (10 at the time of separation) year old daughter. We never divorced. We had a house together so she did a cash out refinance to buy me out. We were able to separate our finances successfully and keep a good parenting relationship. After both of us being able to work on ourselves and make progress individually, we’ve decided to work on the marriage. I’m not sure how to move forward with all the financials.

Facts:
Me
Age: 36
Gross income: $120k
Retirement: $208k
HSA: $8k
Savings: $45k
Own a condo valued at $640K

Her
Age: 37
Gross income: $72k
Retirement: $50k
Savings: $50k
Owns a sfh valued at $650K

Question 1: How should we proceed with housing and taxes?

During separation we continued to split the taxes. I filed as head of household and she filed as married filing separately. Should we continue this since we have the two properties, or should we file jointly and use the other property as an investment property. They will be moving in with me.

Side note: Last year I bought a house for 360k, but I didn't enjoy being there and wanted to be closer to my daughter so after a year I sold it for $470k. Unfortunately I will have capital gains since it was less than 2 years. I ended up buying the condo closer. HCOL area but much better suited for me. Is there a way to avoid the capital gains or minimize them? I don't think a 1031 exchange works since the house sold wasn't an investment property.

Question 2: Should I go all in with combining finances or keep some things separate (bank accounts and real estate)?

Question 3: Is there anything else I should be considering that I haven't mentioned?


Thank you in advance for any help.
bloom2708
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by bloom2708 »

My only thought is that is a lot of real estate on the salaries for each. You don't list the mortgage balances, so might be fine.

I would probably go slow for 3-6 months. Is one of you moving in with the other or staying separate for a while?

A lot of open/honest communication and 1 day at a time.
Topic Author
y4rivera
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

bloom2708 wrote: Wed Oct 27, 2021 3:02 pm My only thought is that is a lot of real estate on the salaries for each. You don't list the mortgage balances, so might be fine.

Mortgage balances total is about $900k.

I would probably go slow for 3-6 months. Is one of you moving in with the other or staying separate for a while?
They would move in with me and rent out the house.
A lot of open/honest communication and 1 day at a time.
Absolutely. We don’t want finances to be a burden on the marriage.
psteinx
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by psteinx »

Congratulations (hopefully).

Re: taxes

I would do the taxes sort of 3 ways:

Your taxes, if you had remained separated
Her taxes, if you had remained separated
Married filing jointly.

Hopefully the last will be lowest tax. Then split the amount of taxes owed proportionately, based on the first two computations.

i.e.
He would owe $60K, separate
She would owe $40K, separate
Joint, you owe $90K. He pays 60% of that.

If you move back in together, and one person rents out their previous housing, maybe put that rent income into the community pot.

I think, in general, it's better for most married folks to combine finances. However, given your circumstances, I'd take a go-slow approach on that.

But, financial stuff aside, work on the relationship stuff. And keep your daughter's feelings firmly in mind, even if, perhaps, your daughter doesn't express her feelings clearly or at all to you or your wife.
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MJS
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by MJS »

This was aimed at three siblings in a somewhat similar situation. Each person created a fair plan, and raised important issues. The plans were submitted anonymously to a fee-based financial expert. The expert evaluated & synthesized the plans & issues, including somethings that no one realized might be important. The persons involved discussed the expert's anonymized proposals and reached an agreement.

Best wishes to you all!
Ipsa scientia potestas est. Bacon F.
123
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by 123 »

y4rivera wrote: Wed Oct 27, 2021 2:52 pm ...We had a house together so she did a cash out refinance to buy me out...
Since the spouse and child now plan to reside with you the house that appears to have been the former family home may now be excess real estate. Depending on the basis of the property and its current value there may be a capital gain that could be (partially?) harvested based on the tax exclusions permitted on sales of personal residence. It may make more sense to cash out a gain, if any, then to hold onto it as an investment property.
The closest helping hand is at the end of your own arm.
Topic Author
y4rivera
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

psteinx wrote: Wed Oct 27, 2021 3:34 pm Congratulations (hopefully).

Re: taxes

I would do the taxes sort of 3 ways:

Your taxes, if you had remained separated
Her taxes, if you had remained separated
Married filing jointly.

Hopefully the last will be lowest tax. Then split the amount of taxes owed proportionately, based on the first two computations.
i.e.
He would owe $
60K, separate
She would owe $40K, separate
Joint, you owe $90K. He pays 60% of that.

Thanks, I'll run the three scenarios and see what comes out better. One caveat though is that one of us would file head of household. I think usually that comes out better.

If you move back in together, and one person rents out their previous housing, maybe put that rent income into the community pot.

I think, in general, it's better for most married folks to combine finances. However, given your circumstances, I'd take a go-slow approach on that.

But, financial stuff aside, work on the relationship stuff. And keep your daughter's feelings firmly in mind, even if, perhaps, your daughter doesn't express her feelings clearly or at all to you or your wife.
Thanks for the advice.
Topic Author
y4rivera
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

123 wrote: Wed Oct 27, 2021 4:30 pm
y4rivera wrote: Wed Oct 27, 2021 2:52 pm ...We had a house together so she did a cash out refinance to buy me out...
Since the spouse and child now plan to reside with you the house that appears to have been the former family home may now be excess real estate. Depending on the basis of the property and its current value there may be a capital gain that could be (partially?) harvested based on the tax exclusions permitted on sales of personal residence. It may make more sense to cash out a gain, if any, then to hold onto it as an investment property.
Sorry, I don't really understand. Would you mind elaborating please?
Monsterflockster
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by Monsterflockster »

bloom2708 wrote: Wed Oct 27, 2021 3:02 pm My only thought is that is a lot of real estate on the salaries for each. You don't list the mortgage balances, so might be fine.

I would probably go slow for 3-6 months. Is one of you moving in with the other or staying separate for a while?

A lot of open/honest communication and 1 day at a time.
Only you know the details here but it doesn’t hurt to go slow. Why not keep both places and start part time. Or maybe you’ve done that and are ready for the next stage of moving forward. Have you talked to your spouse about this?
Topic Author
y4rivera
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

Monsterflockster wrote: Wed Oct 27, 2021 11:57 pm
bloom2708 wrote: Wed Oct 27, 2021 3:02 pm My only thought is that is a lot of real estate on the salaries for each. You don't list the mortgage balances, so might be fine.

I would probably go slow for 3-6 months. Is one of you moving in with the other or staying separate for a while?

A lot of open/honest communication and 1 day at a time.
Only you know the details here but it doesn’t hurt to go slow. Why not keep both places and start part time. Or maybe you’ve done that and are ready for the next stage of moving forward. Have you talked to your spouse about this?
We have discussed it and we agree that we should go at least 6 months before making any major decisions. Regarding the balance it's $900k combined on a total of $1.3 million real estate.
nerdymarketer
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by nerdymarketer »

Just wanted to say massive respect to you making a second attempt at this. And what a way to show your daughter that you love her.

Something to consider: I think highly of my dad for many things--he was (and is) a great dad. But he wasn't perfect and multiple times he came back later and said to his wife and us kids "I'm sorry, I blew it, please forgive me." Whenever he eventually dies, when I stand up at his funeral to say what a great man he was, this is what I plan to say was his greatest legacy, that he modeled that it's okay for a "real man" to apologize. Maybe one day your daughter will do the same.
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cchrissyy
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by cchrissyy »

I agree with the poster who said wait until tax season and run the numbers each way. you don't need any answers right now about how you should file.

At first, I would suggest caution about renting out or selling either property.
It's not about maximizing the short run income or the tax deduction, it's about avoiding making a mistake that would be hard to undo for the long run.

And there is absolutely no rush to combine finances in any other area. Plenty of happy couples keep separate accounts for life. It's fine, no pressure, you can merge financials down the line, maybe, a bit, if it's right, definitely not something for this year's to do list.
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celia
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by celia »

y4rivera wrote: Wed Oct 27, 2021 11:46 pm
123 wrote: Wed Oct 27, 2021 4:30 pm
y4rivera wrote: Wed Oct 27, 2021 2:52 pm ...We had a house together so she did a cash out refinance to buy me out...
Since the spouse and child now plan to reside with you the house that appears to have been the former family home may now be excess real estate. Depending on the basis of the property and its current value there may be a capital gain that could be (partially?) harvested based on the tax exclusions permitted on sales of personal residence. It may make more sense to cash out a gain, if any, then to hold onto it as an investment property.
Sorry, I don't really understand. Would you mind elaborating please?
If both of you lived in the house for at least two of the 5 years before selling, $500k of gains would not be taxed. If only one spouse lived there for 2 of the previous years before selling, $250K of the gains would not be taxed.

I think this is what 123 meant.
Topic Author
y4rivera
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Joined: Fri May 26, 2017 7:20 am

Re: Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

nerdymarketer wrote: Thu Oct 28, 2021 12:33 am Just wanted to say massive respect to you making a second attempt at this. And what a way to show your daughter that you love her.

Something to consider: I think highly of my dad for many things--he was (and is) a great dad. But he wasn't perfect and multiple times he came back later and said to his wife and us kids "I'm sorry, I blew it, please forgive me." Whenever he eventually dies, when I stand up at his funeral to say what a great man he was, this is what I plan to say was his greatest legacy, that he modeled that it's okay for a "real man" to apologize. Maybe one day your daughter will do the same.
Thank you for your words. Fortunately our separation was done in a way where we maintained a good relationship and respect. It was important to us to have that for our daughter. We still celebrated birthdays together as we always had and I spent several days a week with her. That was important to me to be present.
Topic Author
y4rivera
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Re: Getting back together after 3 years of separation- lots of financial questions

Post by y4rivera »

cchrissyy wrote: Thu Oct 28, 2021 12:47 am I agree with the poster who said wait until tax season and run the numbers each way. you don't need any answers right now about how you should file.

At first, I would suggest caution about renting out or selling either property.
It's not about maximizing the short run income or the tax deduction, it's about avoiding making a mistake that would be hard to undo for the long run.

And there is absolutely no rush to combine finances in any other area. Plenty of happy couples keep separate accounts for life. It's fine, no pressure, you can merge financials down the line, maybe, a bit, if it's right, definitely not something for this year's to do list.
I agree. That sounds like solid advice. There is no reason to rush things.
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