How the Tax Laws for 2019 Could Affect Your Divorce
When you’re facing divorce or in the midst of a divorce case, that last thing on your mind is probably your taxes. However, taxes can affect divorce negotiations in many ways, and can often help determine how you and your spouse resolve certain issues. The Tax Cuts and Jobs Act of 2017 made sweeping changes to the U.S. Tax Code, and some provisions will affect divorcing couples.
In past years, tax laws applied to alimony payments as follows:
- The payor of alimony could deduct the payments from their taxes, reducing their tax liability
- The recipient of alimony had to report payments as taxable income, increasing their tax liability
This situation often resulted in spouses being willing to pay more alimony due to the tax break, as well as spouses not wanting to request too much alimony due to the possible liability.
As of 2019, this situation has been turned upside down – and quite literally. Under the new tax laws, the following is true:
- The payor of alimony will no longer be able to deduct the payments from taxes
- The recipient of alimony will no longer have to pay taxes on payments received
This means that spouses will no longer have an incentive to agree to pay alimony, and spouses will have no tax-related deterrence to requesting higher alimony payments. This will possibly make an already contentious issue in a divorce even more so. Economic experts have predicted that the change will likely result in lower alimony payments across the board.
Previously, spouses seeking alimony could deduct those alimony-related legal fees from their taxes, though the new tax laws eliminate this opportunity. This may discourage spouses from spending additional money to wage an ongoing war for unrealistic alimony payments, but it may also make it more difficult for lower-income spouses to seek the alimony they need.
One bargaining chip that played a role in many divorce negotiations for years was the ability to claim the child exemption of $4,050 on your taxes, as only one parent can do so per year. The new tax laws eliminated the child exemption, however, so parents must only decide on who may claim the child tax credit, which is $2,000.
If you have a divorce judgment regarding alimony from before December 30, 2018, the old tax rules will apply. If you need a modification, however, the new alimony order will likely be subject to the new rules. If you have a signed contract with your divorce attorney regarding fees prior to the start of 2019, the fees for seeking alimony will still be tax deductible. Unfortunately, there is no way to be grandfathered-in regarding child exemptions, as it is no longer possible to claim the exemption, even if you agreed to it long ago.
Tax issues can play an important role in divorce negotiations, and you should always discuss taxes with your skilled divorce lawyer. If you are facing divorce, call the Law Offices of Mark G. Rodriguez at 813-227-9642 or contact us online today to discuss your specific circumstances.