Going through divorce procedures has never been easy. Divorce brings emotions of a failed relationship and a broken family in addition to paperwork, time-consuming procedures and a lot of expenses. Division of assets is complicated enough and the revised tax structure that took effect in January, 2019 has made it even more complex.
If you intend to divorce this year or beyond, you should arm yourself with proper knowledge in the following matters.
Tax Changes Pertaining to Divorce
Some key changes have been made in the areas directly or indirectly related to divorce. Here are the key changes for you to know:
Alimony received will not be taxable and alimony paid will not be tax-deductible from now on: Alimony, usually paid by men, has been tax-deductible and alimony received, usually by women, has been taxable income for decades. These are going to change from this year and beyond due to changes made in the 2017 tax laws.
The changes are going to make the divorce process more complicated, emotional and considerably bitter. This are going to be the biggest issue in divorce cases this year and beyond it. According to a reliable estimate, great revenue will accrue for the government from now on due to the tax changes in divorce alimony.
The new tax structure will see the high-heeled divorcing couples battling out aggressively to make less payments for alimony. This is because, the government will not subsidize the payment through tax deduction. Lower-income couples will get engaged into bitter fights to extract alimony as much as possible in order to get the tax burden eliminated and up the payment further. According to the new laws, the fees paid to a high asset divorce attorney will not be tax-deductible from now on.
Tax changes will affect pre and post-nuptial agreements: The latest rules may invalidate many elements in such agreements. Therefore, it is important to get the pre and post-nuptial agreements reviewed by an attorney, financial expert or both. Don’t hesitate to re-negotiate terms if required.
Tips on Taxes & Divorces for 2019
If you are undergoing a divorce procedure in 2019, it is important to consider the following points:
Know what is good and what is bad: The new laws require the divorcing couples, their financial attorneys as well as financial advisors to scrutinize the matters from all possible angles. Though alimony often makes the headline, it is not the only asset included in a divorce procedure.
Understand the differences between good assets and bad assets on the basis of tax structure: If you are from a higher-income group, think about giving an IRA (Individual Retirement Account) to the spouse with the lower income, if applicable. This is because, the procedure moves the tax burden to the spouse receiving the alimony during assessment of IRA.
Both spouses should consider their tax burden carefully and seek the best comprehensive way to gain financial benefits both in the short and long term.
Go like a slow coach: Sometimes, going slow benefits the divorcing couples. As the financal advisors and lawyers navigate through the latest changes, it will take them time to be aware of new angles, tricks and patterns to help their clients enjoy financial success in divorce cases.