Due to the passing of the Tax Cuts and Job Act (TCJA) of 2017, traditional divorce planning is proving to be more difficult. Divorcing couples that have large net-worth are under pressure to settle their divorce as quickly as possible, before December 2018 when certain tax benefits will no longer be available. Starting in 2019, alimony payments will be considered the same as child support payments, meaning that it is not deductible.
Currently, the alimony payor could deduct the amount of alimony from their income and not have to pay taxes on it, and the recipient would pay a lower tax rate. This benefitted all parties involved as the payor would be more likely to make higher payments so they would have to pay fewer taxes at the end of the year. However, with the new law in effect in 2019, the payor might not be so inclined to make larger payments, therefore, the recipient might not get as much money. This can be devastating for those who rely on alimony as their main source of income after a divorce.
It’s now more imperative than ever when going through a divorce to find an attorney who is knowledgeable in high asset divorces as well as in the new tax law so you can strategically plan how to protect your assets and maximize tax benefits. Ideally, both parties will be amicable to ensure a smooth transition financially otherwise a contentious divorce can be financially draining on both sides in the short and long term.