The Intersection Of Divorce And Taxes

by | Oct 4, 2018 | Estate & Gift Taxes |

For many people who have never gone through the process, divorce might seem like it should be as simple as getting married. In practice, the two events have almost nothing in common. They both come with legal consequences, but that is where the similarity ends.

Divorce is a complex process while getting married is a relatively easy process. The paperwork required to complete even an uncontested, amicable divorce can push a person’s patience to the breaking point. There are numerous elements to divorce that most couples never even consider when they are getting married. One of the things that needs to be considered is the tax implications that effect both parties to a divorce and its required procedural steps.

New Code, New Pressure

Recent changes to the tax laws will likely have an impact on how some divorces proceed. The definition of taxable income has been changed, dramatically altering the balance in divorces that include using a child as a deduction on your taxes, alimony and how it is applied and spouses who own their own businesses.

Divorces completed in 2018, will enjoy the same tax benefits they have previously been granted under maintenance/alimony laws which historically include alimony as being deductible by the payor and considered taxable income by the person who receives it, called the payee. Starting in 2019, alimony will be treated the same way child support has always been – not tax deductible by the party paying it and not as taxable income by the person receiving it. The incentive to agree to more alimony, in exchange for other considerations in the divorce will drop substantially since there is no longer a benefit to the payor.

More Complicated Than It Seems

That is not the only thing to consider when reaching a divorce agreement in 2019 and beyond. Issues concerning the Child Tax Credit, dependency exemption, education credits and more are all potentially impacted by the adjustment in tax laws going forward. Divorce has never been simple or straightforward, but now more than ever it is important to have skilled legal advice to reach the best possible result in your divorce.