If your marriage is in a rocky place, it would behoove you to be mindful of the timing of decisions; the government has recently enacted a few tax laws that impact divorcing couples, especially those with high net worth. Tax codes are perplexing in the best of times and now, quite frankly, does not constitute the best of times. This makes it more important that you understand how these new laws affect you.
How do you decide if it is in your best interest to settle this year? The first step is to take a deep breath. Second, divorce attorneys in Scottsdale recommend considering the three items below and what effect they will have on you. Third, work with a lawyer as well as a financial advisor experienced in divorce to minimize the impact of the new laws.
Move Fast To Control Taxes On Alimony
Alimony, often called spousal support or maintenance, will have a significant change on New Year’s’ Day in 2019. Under current laws, alimony has been deductible by the paying spouse and taxable to the receiving spouse. This benefited the family unit as the recipient paid tax at a lower rate than the payor deducted it at resulting in lower taxes. Going forward, however, alimony will no longer be deductible by the payor or taxable to the recipient. Alimony will now be treated the same as child support: tax free.
Tax Benefits Of The Family Home Are Changing
Your home. This is a popular item in many divorces. Is it a top priority to keep it? Are you itching to leave it behind with the past? How do you split the value? It’s important to focus on your home as a financial asset while factoring in the memories as well as the potential emotional stability it may provide. The new tax law reduced the deductibility of property taxes and the amount of mortgage that qualifies for interest deduction making it more expensive to own a home under the new tax laws.
Kids Are No Longer As Great A Tax Deduction
The new tax code also eliminated the personal exemption amount for tax years 2018–2025. This means that you don’t get a multiplier of kids as a deduction on your tax return. It’s still important, however, to negotiate who will claim the kids for other purposes. While the exemption amount is zero dollars, it may allow the parent to receive additional child tax credits, which are more generous under the new law.