Divorce is not something to rush into. However, couples that have decided that divorce is in their best interest may be wise to move forward with proceeding sooner rather than later.
Why finalize a divorce in 2018? The short answer for why a couple should seriously consider to finalize a divorce this year? Taxes. The Tax Cuts and Jobs Act of 2017 (TCJA) has led to a number of changes to the tax code.
Two specific ways these changes will impact divorce include:
- Alimony. The new law has changed how alimony is treated by the tax code. In the past, the spouse paying alimony could deduct the funds while the receiving spouse would count the alimony payment as income. The TCJA removed the ability to deduct alimony. Although this benefits the spouse who would receive the alimony payment, it will likely make negotiations for alimony much more difficult. In the past, the tax deduction served as a valuable bargaining chip during divorce negotiations. The new tax law removes this negotiation tool. Couples that finalize their divorce in 2018 can still take advantage of the current law.
- Property tax changes. The TCJA decreased the amount of property tax a taxpayer can deduct from his or her federal tax returns. Essentially, this means it will be more expensive to own the family home. As such, it may be wise to consider selling the home prior to finalizing a divorce. The timing of the sale will impact tax obligations. The Internal Revenue Service (IRS) will likely tax the gains from the sale of a home under the "married" rate if the sale is finalized prior to the divorce, allowing for a higher threshold before taxes are applied.
It is especially important for high net worth couples moving forward with a divorce to carefully consider their tax obligations before finalizing a divorce.