2018 could be the year to get divorced

On behalf of Barli & Associates LLC posted in divorce on Thursday, February 22, 2018.

With the new tax rules provided by the Tax Cuts and Jobs Act, any divorce that takes place following Dec. 31, 2018 will be subject to different alimony rules. As such, if alimony will be an issue in your divorce, you may want to consider what it will mean for your finances if you finalize your divorce in 2018 versus 2019.

The difference relates to who gets taxed for alimony payments. Currently, spouses who pay alimony to their spouses could right off their payments as a deduction against their income (and the receiving spouses would pay income tax on it). If this significant deduction served to decrease the alimony payer’s tax bracket, not only would he or she benefit from deducting the income, but might get shifted into a much lower tax bracket as a result — translating into significant tax savings.

In 2019, this will change, as alimony payers who divorce after Dec. 31, 2018 will not be able to deduct their alimony payments. This money will remain counted as their total net income for the year. This will likely result in adjustments to the amount spouses pay and receive in alimony. As the tax burden will be shifted to the paying spouse, that spouse will probably need to pay less alimony. Meanwhile, because the receiving spouse will not be paying income taxes, the lower amount of payments will not be an issue.

When negotiating alimony settlements after Dec. 31, 2018, spouses and their legal counsel will need to determine appropriate adjustments to the amount of alimony to be paid in order to account for this shift in tax burdens. The more that spouses understand about how the law and tax rules will apply to them, the better equipped they’ll be to navigate these issues successfully.

Source: CNBC, “Alimony tax changes may scorch divorcing couples,” Annie Nova, Feb. 16, 2018