How New Tax Laws are Affecting Divorce
Financial agreements are often some of the most significant and hard-fought aspects of divorce proceedings. Deciding who gets what and for how long has a lasting impact on all parties. As divorcing partners evaluate the many aspects of their divorce, taxes are often some of the last things on their minds. Until recently, that was because alimony payments were tax deductible. With the passage of the new federal tax code, however, this is no longer the case, a change which is sure to have an impact on couples seeking divorce beginning in 2019.
Changes to Alimony Taxation
Alimony payments were originally made tax-exempt over 70 years ago in order to reduce the financial burden on divorcing couples as they moved into financial independents. Now, that law has been reversed in order to raise at estimated $6.9 billion in tax revenue over the course of the next ten years. At the same time, the spouse that is receiving the alimony payment will not need to pay income tax on it. While this may initially seem like a boon to the recipient, the truth is that the new tax law will reduce the upfront amount of money that makes it to the recipient, which will likely offset the tax break afforded to the recipient.
The “Divorce Subsidy,” Explained
Tax-deductible alimony payments were sometimes as described as a “divorce subsidy.” That was because the tax write-off provided to alimony payees was believed to provide an incentive to agree to a more substantial alimony payment. Not only would this ready agreement net a higher payment for the recipient, it would also allow the couple to avoid lengthy and expensive litigation.
Getting Divorced Under the New Tax Code
Because of the new tax laws and the additional layer of complexity they add to the divorce process, it is more important than ever for individuals involved with divorce to seek knowledgeable legal counsel to advise them on the best course of action for their finances. For couples who are still willing to collaborate with one another, there may be even more options for saving money in the face of these new tax rules.
Ernest A. Casacca Attorney at Law provides experienced, compassionate legal advice for individuals and families facing divorce. He can help you protect your interests and find the best financial solution possible for your needs, whether through collaboration or pursuing the issue in court. If you are involved in divorce, call our office at (805) 466-5888 today to take the first step toward your future.