Divorce is never something to rush. However, when there are high stakes it’s important to take note and do what you can to better your situation. Divorce is a complex issue, both emotionally and financially. The more complicated your assets, the more complicated your divorce will likely be.
The new tax law passed in late 2017 will have a significant impact on those paying alimony in years to come. Any divorce completed by Dec. 31, 2018 will follow existing tax law. Any divorce completed in 2019 or later follows new rules. Specifically, alimony payments are currently tax deductible, while post-2018 divorces will no longer allow the deductions.
Alimony, deductions and who it affects
Spousal support, historically called alimony, is a payment made from one former spouse to the other. Its purpose is to maintain their standard of living and to account for non-financial contributions during the marriage. Factors include disparate income between the two partners, child care considerations, health issues, personal history and more. Statistics show that women earn less than men which, in turn, means women typically receive more alimony than men.
Today, approximately 600,000 Americans claim the tax deduction. Among them, 20 percent who claim it are within the top five percent highest incomes. Many expect the law change to reduce alimony payments as a whole, including among wealthy Americans. A decline in alimony will hurt divorcees with a large income difference between former partners the most.
Division of property and taxation
As with any changing law, people are still sorting out the best options. Couples can counter the tax changes by dividing property differently, either at the time of divorce or through later-in-life distributions like retirement accounts and trusts. Property and tax law go hand-in-hand, which is why division of property is one of the most challenging aspects of divorce.
The goal for anyone going through divorce is to get the best possible outcome from a difficult situation. People divorce for many reasons. Whatever your personal situation, it’s essential to focus on the long-term effects of your settlement and not just the short-term relief of “getting it over with.” For some, rushing through an agreement to comply with current tax laws may be the right solution. Always consider the big picture and know that there are options to help you, whether you aim to complete your divorce before the new year or after.