Don't Do It His Way

When Frank Sinatra, Jr. died last March, he was embroiled in divorce litigation with his ex-wife, Cynthia.  When they divorced in 2001, he was ordered to pay her $5,000 per month for a year.  Sinatra continued to voluntarily make those payments for an additional 10 years until he was financially unable to do so.  Rather than show gratitude, his ex-wife filed for a second divorce claiming that they were in a common law marriage in Texas because he continued to refer to her as his wife both on stage and privately.  

Sinatra actually lived in California, paid California income taxes while he could have avoided taxes if he were a Texas resident (Texas does not have an income tax), and filed federal gift tax returns for the payment to his ex (transfers to spouses are not subject to gift taxes).  Nonetheless, a Texas court ruled that they were married and awarded her $500,000, half of his $4.5 million house, and $5,000/month for another year.  Sinatra died during the appeal which was ultimately decided posthumously in his favor. 

So many possible points, but let’s stay with a few.

1.   Only 15 states recognize common law marriages.  Ohio is not one of them.

2.  To have a common law marriage, couples must agree that they are married, tell others that they are married, and live together in the state which recognizes common law marriages.

3.  If Sinatra was filing income tax returns as a California resident and filing federal gift tax returns for the payments to Cynthia, he did not consider her his wife.

4.  Being a gentleman got Sinatra nowhere - he was trying to be considerate of Cynthia by not referring to her as his “former wife.”  If he had to do it again, I suspect he would introduce her as “my EX-wife, hear that?  My EX-wife.”

                                          Photo:  Michael Ochs Archives

                                                                     License:  Fair Use/Education

Hey, New Jersey, Your Tax Base Is Too Narrow

David Tepper is a hedge fund manager whose company is located in New Jersey.  He is also a resident of the Garden State (misnomer alert). He recently announced that he was moving his corporate headquarters and his personal residence to Florida.  The NJ state budget director then stated that this move could affect the amount of tax revenues generated by NJ.  

For the record, NJ has the highest real estate taxes in the country, a state estate tax rate of 16%, only a $675,000 exemption for estate taxes (lowest/worst in the country), and a top income rate of 9%. Florida has no income tax and no estate tax, no Newark or Camden, but plenty of sunshine.  Some NJ legislators wish to revise the state tax code to retain residents like Tepper while others believe his move and others are a "blip" and do not warrant revision of the tax rates.

Three quick points:

1.  If the state is so dependent on the income of one individual, its tax base is too narrow and should be expanded to include more residents.

2.  Those NJ politicians who tell NJ residents to "fuhgeddaboudit" the NJ income and estate tax rates because they do not matter to people are delusional.

3.  Note to Bernie Sanders supporters, you can only tax people so much before they change their behavior to reduce their tax burden.