Getting divorced (on paper) for financial aid?

<p>I don't think divorce for aid is a good idea for so many reasons - but sadly it does make some financial sense. To the government, married, single, legally separated are simply legal statuses. I would be very surprised if anyone who filed with the correct legal status is ever successfully challenged in tax court. The government cannot dictate (thank God) where you live or how unless you're in custody. As far as I can tell, sham marraiges have been challenged for immigration law purposes, not for tax filing, even when the marraige was found not to meet the criteria for citizenship. Has anyone ever heard of a "sham divorce" being challenged? Many people have divorced for tax purposes and I've read news stories on a number of senior citizens who divorced when one of them had health issues and needed to qualify for Medicaid. They continued to live together as single adults with one of them receiving benefits. If they qualify as singles, there is apparently nothing illegal about it, although I'm sure it was heartbreaking for them to be forced to do this.</p>

<p>As a divorced parent who qualified for the automatic 0 EFC, I was surprised at how extensive the benefits for low EFC students are. If my daughter were granted all the federal and state grant money she's eligible for over a four year period it would total $58,850 from TAP (NY), Pell, ACG, SMART, and FSEOG. If the maximum funds are available, she could potentially receive an additional $35,000 in subsidized Stafford and Perkins loans. That's just for undergrad and doesn't include the work study, institiutional need based aid/scholarships, and a number of other programs (SDS, LDS, HPSL, state scholarships etc.) she would qualify for. A rough estimate of all the grants, scholarships, and interest savings would put the maximum over $80,000 - and that's mostly tax free, so it would be comparable to a much higher pre tax sum. Granted, it's unlikely that she'll be offered or need that much as she already has a college fund and several scholarships, but there is an awful lot of money out there for low income students. So, from the financial standpoint alone, it may make sense. But, as they say, money can't buy happiness and I personally would have a tough time sleeping at night!</p>

<p>To this point people have focused on the possible legal consequences if a couple were to obtain a legal divorce but make it a sham by continuing to be a couple ... the other show that could drop would be if the schooll found out the divorce was a shame to try to get financial aid ... I would then think the student could be expelled from school.</p>

<p>Although there is the potential for other monies, the only thing a zero EFC guarantees in terms of fin aid is the Pell and subsidized Stafford. Not all school or states offer other programs for the students, and even if they did, there is not enough to go around, and not everyone will get the money. It's really after the fact, when the acceptances and offers are in, that you can tell how much of a difference the aid might be. </p>

<p>The primary problem would not be the school in a sham divorce but the federal government. If you are still living together and have not been going forward with a divorce, yet reaping the tax benefits of the divorced, it can be a big problem if you are caught.</p>

<p>What I have seen too often are couples who delay marriage until college aged kids are finished with school so that the step parents' financials do not enter the picture. I know a number of people in this situation. A doable financial aid package from colleges would be disrupted with another income/assets thrown into the mix. So the actual marriage is delayed.</p>

<p>Interesting, but also confusing, financial aid aside couldn't a couple divorce then get back together, but be afraid to remarry- once burned, twice shy?? I mean for real, not for financial aid.</p>

<p>if that happened, who is going to be upset if they live together, given that a uge number of couples live together without being married?</p>

<p>I do agree with whomever posted above, I think doing it for finaid purposes, besides being fraud & creepy, I think it would also subconsciously become a mindset and be a way to actually move on emotionally!</p>

<p>Cpt, I agree with you. Its one thing to delay a marriage, another to get a bogus divorce.</p>

<p>The entire system needs to be changed. Both the biological parents, and NOT any stepparents should be responsible for a childs tuition. State divorce law should enforce that. Why should a step be responsible? They didnt bring a child into the world? And why should a biological be able to avoid?</p>

<p>Just to clarify, I am not actually considering doing this. I was just wondering, hypothetically speaking, if people have ever tried it and what would happen. </p>

<p>My thinking was the same as sk8rmom's. I don't see how anyone could realistically be prosecuted for this. If a couple is legally divorced and maintaining two different addresses and households, then they are - for all intents and purposes - officially a divorced couple. True, their intent may be unethical and that would of course be morally wrong, but how could a govt. employee possibly try to prove whether or not a divorced couple is acting like one? My sister-in-law and her former husband continued to live together for months after their divorce, because neither wanted to leave the house. My mother-in-law still owns joint property with her former husband, 20 years after their divorce. And I know many divorced couples who spend a lot of time together - including, in some cases, overnight visits. </p>

<p>kayf, you are right - the entire system needs to be changed so that both biological parents are held responsible, regardless of their marital status.</p>

<p>Kay, the step-parent may not have chosen to bring the child into the world, but the step-parent chose to become a parent when they married into a premade family, hence the title step-parent. If you are going to marry someone who alreayd has children, you should be prepared to help that child succeed. If not for the child's sake, but for your new spouse's sake.</p>

<p>I'm not a stepparent but my sister recently is, and I have to disagree that stepparents should be on the hook for their stepchildren's college costs. My step nephews are adults (18 and 21). They are basically nice boys but lazy and unmotivated. My sister didn't choose to bring them into the world, didn't raise them, and isn't responsible for how they turned out. Why should she sacrifice her own hardearned savings for them? We're not talking shelter and food here. College is not a right or a basic need.</p>

<p>Re the divorce issue: legality aside, disavowing your spouse for the sake of a few thousand bucks in financial aid is a dishonorable thing to do. I can't imagine a truly loving couple even considering it.</p>

<p>Well, not to rock the boat or anything...</p>

<p>but I personally think marriage is an outmoded form of legal slavery, whereby one person is unwittingly bound to another's finances, and often responsible for them; I personally do not believe in marriage. Don't get me started on community property states.</p>

<p>So why would it be fraud if people who had some relationship were divorced? For college tuition and financial aid benefits or not, maybe they would just be better off divorced (i.e., not legally tied). I don't see this as defrauding the IRS. If I want to live with someone, I am free to do so without marrying them.</p>

<p>Sheesh!</p>

<p>Yes, divorcing someone for financial aid is extreme, but I hardly think it is an ethical issue. Without the stress of finances, people might be happier. The number one cause of divorce is finances. So why is divorcing for a Pell Grant anything to be surprised about?</p>

<p>cpt wrote --</p>

<p>There are many couples who would benefit financially by filing taxes as separated. If there are two or more dependents they can be split between them for tax purposes and each parent can then get extra exemption as a single parent. Also income can be allocated so that more can be taxed at the lower levels. College financial aid is just a drop in the bucket of what financial benefits that can be realized doing this. But it is tax fraud.</p>

<p>WHY is it tax fraud? If I divorce because I will be better off, why is that fraud? Is it fraud if I divorce and then proceed to have sex with my ex husband? Where is this written down?</p>

<p>Nickl,</p>

<p>We are going to have to agree to disagree on this one. In most states, other than financial aid, issues, stepparents are "legal strangers". They are no more parents than godparents, etc. The parents who brought the child into the world are responsible.</p>

<p>Linda, I am not a tax person or attorney, so I cannot get into the technicalities of the law. If someone truly wanted the tax benefits of being single so much that he/she decided to research the laws, separation and divorce can certainly be done. The issue comes afterwards. If the returns are picked for scrutiny, the audit will then look to see if the couple separated or divorced solely for tax reasons if certain flags come up. Are they living in the same house? Are they sharing financial assets? Are they going around as husband and wife? If that is the case, it is possible that the divorce is considered a sham. Going to court to fight something like this is a pain in the neck and expensive, not to mention taking a lot of time. You may win in the end, but in may cost you more than it is worth.</p>

<p>Also, you have to be very careful, if you really want the benefits of marriage that your wills, and paperwork are set up that way. You may have issues with insurance and other things. A reason why gay couples want their unions defined as marriage, rather than a civil union is because there are a lot of implicit rules in our society for married folks. Unless you are well versed in all of them, you can miss one. </p>

<p>The other problems with a sham divorce for tax purposes is that it becomes to easy for one person to truly leave and hurt the other financially. Marriage is not an easy thing to maintain. Many fights, many moments when you think about leaving. That divorce is such a process, often is a stop gap from people from rushing into the situation. If the divorce is already in place, it makes things that much easier. </p>

<p>I don't think it matters whether steps are legal strangers or another set of parents in the financial aid world. For FAFSA purposes, they are considered. The non custodial parent is not. Crazy, as I have known situations where the non custodial parent is very well to do, whereas the custodial one is not. It is possible to be eligible for the PELL and other aid even with a highly paid, rich non custodial parent. It's a loophole in this system. There are a number of such loopholes.</p>

<p>cpt: I personally do not see how the US Gov't can "investigate" and "prosecute" a couple who divorced and then choose to live together. I also believe that divorcing to improve one's financial situation is entirely legal. </p>

<p>I am not married, but if I were to get married at this point, to someone who made any sort of reasonable income, then that person would automatically assume my child's college tuition bills, for then I would no longer be eligible for much financial aid. As well, if at some point, this hypothetical spouse lost his job, there I would be with a very high EFC, based upon his income.</p>

<p>It may seem "legal", but your conscience may have trouble with it. Or not, if you really don't find anything wrong with divorcing for money.</p>

<p>Well, Irish, I would not find myself in the situation of divorcing for money, since I am not married and have no plans to marry; however, I do not think it is illegal for:</p>

<p>two people to divorce;and then: file taxes appropriately for their individual financial situations and pay their taxes; live together (or not); share resources; have children and/or raise the ones they already have; and live law abiding lives.</p>

<p>This does not condone hiding assets illegally or sheltering assets illegally, of course.</p>

<p>To me the crux of it is in the above post "share resources". That is exactly what the step parent part of FAFSA is taking into account. If I remarry someone with a high income which allows me to not work should I be considered low income and my child receive 100 percent financial aid?
Does that money mean there is less for a married couple who are truly low income or a married couple where one is disabled and one is low income?<br>
The reason FAFSA takes into account the step parent is because resources are shared.</p>

<p>^ No knowledge of tax laws whatsoever, but wouldn't a live-in relationship be perfectly legal and still share resources?</p>

<p>I would not be so quick to say that the idea of such a divorce is tax fraud. To take the idea of a sham marriage for a green card and apply it to taxes is not such a great legal analogy. Immigration is based on a set of statutes and regulations, and so is taxation. And they do not tie together for the most part. Maybe some people will remember about 30 or 40 years ago when seniors did not want to remarry new spouses after prior spouses had died due to potential decreases in social security. No one went after them for living "in sin". Remember I am talking about people born around the year 1900, like my grandmother. I think that ssi laws changed and so did the amount of work done by women who may qualify for more money on their own than when they just were housewives.</p>

<p>At any rate, with taxes, often, but not always, if it is legally permissible, that is the end of the discussion. No motivation questions etc. Not true with some aspects of immigration law (like marrying just for a green card.) Don't forget that in these hard economic times, you have probably read, and will continue to read of those who can not sell the home in a divorce and continue to live together post divorce (albeit usually in separate bedrooms.) And have you never heard of a divorced couple getting back together?</p>

<p>No comment on whether I think this is a good idea.</p>

<p>Sorry, but I agree with LindaCarmichael, divorcing is not tax fraud. It is legal and if that suits 2 people then so be it. I have a friend who is divorced and has been engaged to someone for a while. She is not getting married until her children are out of college. She is reaping the benefits of head of household and they live together. Is that tax fraud? I say no. Someone I work with is livibng in a committed relationship with the father of her 2 children. They have decided to not get married because they get tax benefits. His job gives them domestic health insurance and other benefits so why should they marry? I think the tax system needs to change because somehow being married is more of a tax liablilty than a benefit.</p>

<p>There is a big difference between divorcing one person and planning to remarry another, or bringin another person into the household without the marriage, and divorcing person A and continuing to have person A reside in the same home, with all the benefits of marriage. Divorce occurs. Divorced people sometimes choose to remarry or choose to live with their significant other without a marriage license. But divorcing your spouse solely for the tax benefits while maintaining a household with that spouse is a whole other issue.</p>

<p>Fraud is defined as: </p>

<ol>
<li>deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. </li>
<li>a particular instance of such deceit or trickery: mail fraud; election frauds.<br></li>
<li>any deception, trickery, or humbug: That diet book is a fraud and a waste of time.<br></li>
<li>a person who makes deceitful pretenses; sham; poseur. </li>
</ol>

<p>And this situation would be a fraud.</p>