Smith, Meier & Webb, LPA

How will the 2019 new tax laws affect your divorce?

The 2019 tax bill introduced measures that will change how you settle your divorce in the new year. The changes have been in the works for years, but now that they have finally arrived, your fight for a financial settlement could get ugly. 

What has changed for divorce in the 2019 tax bill?

In 2019, various expenses related to divorce will no longer be tax-deductible. This will significantly change how you negotiate the division of assets, property and future financial support in your divorce settlement.

  • Alimony paid is no longer tax-deductible, alimony received is not taxable income
  • Child dependent exemptions are replaced by child tax credit
  • The new child tax credit is lower than the previous dependent exemption
  • Various legal fees are no longer tax-deductible

The elimination of the alimony deductible is expected to raise almost $7 billion for the IRS in the next ten years.

Alimony has been tax-deductible for as long as any lawyer practicing today can remember. Any divorce case filed as of Jan. 1, 2019 will be subject to these new tax laws and will likely need significant financial evaluation as well as legal advice.

This change does not encourage higher-earning partners to agree to pay alimony and instead they will likely pay more in child support. This could leave the partner who earned less during the marriage financially vulnerable. If the higher-earning partner does choose to pay alimony, the recipient may celebrate that it is not taxable, but the overall amount they receive will likely be less.

Who will be the most affected by these changes?

These changes will likely disproportionately affect women, at least initially. According to the 2010 Census, 97 percent of alimony recipients were women. Women also usually accept more of child-raising responsibilities, meaning they could be left with more financial expenses and less support than in 2018.

Other than being profitable for the IRS, these changes aim to equalize the standard of living for both partners. Philosophically, the changes could discourage divorcing partners from seeking revenge and instead look to support their children and other mutual interests. Custody arrangements will have a renewed financial incentive in mind as to who can claim the appropriate credit on their taxes.

These tax law changes could result in a particularly ugly battle over finances. Couples who began divorce proceedings or signed pre- or post-nuptial agreements in late 2018 may be grandfathered in using older tax laws. Or, they could be tangled in agreements and negotiations under the new tax codes in addition to the old ones.

Applying these new codes will be confusing for less experienced legal representatives, or those without experience in financing. You will need to take caution in 2019 to avoid legal missteps.

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