Anyone considering a divorce or in the early phases of the divorce process will likely finalize the divorce in 2019. The date of the final divorce agreement is important as it will determine which tax laws apply. Those that finalize their divorce in 2019 will likely be subject to the new tax regime.
What is different in 2019? The Tax Cuts and Jobs Act changed how the Internal Revenue Service (IRS) taxes alimony. This change impacts both the person paying and the person receiving alimony. In the past, the individual paying alimony could take advantage of a tax deduction.
As of 2019, this deduction is no longer available.
How will this impact negotiations? Based on previous tax law, couples would negotiate a larger alimony payment based on the tax benefit. The loss of the deduction removes a valuable negotiating tool for the person requesting alimony payments. As such, this individual may have to adjust his or her negotiation strategy.
What about couples who finalized their divorce before 2019? As noted in a recent publication in Forbes, those who finalized their divorce before 2019 are grandfathered in and can still take advantage of the alimony deduction. However, it is important to note modifications could result in unforeseen consequences. This could include the loss of the tax benefit.
This change is just one thing that can impact your divorce. You can mitigate the risk of surprises when negotiating your divorce by seeking experienced legal counsel. An attorney can discuss the various factors that will impact your divorce and reduce the risk of any surprises after your divorce is finalized.