E-commerce, advanced telecommunications, and the gig economy have combined to give many married couples more flexibility in their working and living arrangements than in the past. One of these options, rare until recently, is for spouses to assert they live in different states for tax purposes. An increasing number of marriages have the mobility to allow one spouse to reside in California, while the other elects to establish or maintain legal residency elsewhere. This is especially true for higher income couples, where supporting two households is economically feasible, one spouse wants to enjoy the benefits of living in California (often with the couple’s children), and the tax advantages of the other spouse having nonresident status is significant.
That said, it is no simple matter to establish or maintain nonresidency status while married to a spouse who is a California resident. There are traps for the unwary.
To Each His Own Residency
Many taxpayers are surprised to learn California even allows separate residency status for spouses. But in fact it is specifically permitted under California law. In the past, this situation was so uncommon it hardly raised a blip on the radar scope of the Franchise Tax Board, California’s tax authority. Typically it involved a scenario where a husband took a long-term job out of state or overseas (older cases are populated with merchant marines and oil-field workers; more recent ones feature professional athletes and corporate managers). That’s changed. Split-residency marriages are now more about a lifestyle choice involving where to live and do business in a global economy that can allow people to work from anywhere.