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Divorce: Does timing matter?

Whether initiating or not, those who are in the midst of a divorce likely have many questions. One question to take into consideration: does the timing of my divorce matter?

In short, the answer is yes — when you get divorced matters. More specifically, the date you finalize the divorce matters. The Internal Revenue Service (IRS) will treat a couple as married or unmarried based on their status December 31. If their divorce is finalized the last week of the year, they are considered unmarried for the entire year for tax purposes. If not, the IRS considers the two married. In this case, the two can choose either to file joint or separate tax returns.

The timing of the divorce is especially important due to recent tax changes. The Tax Cuts and Jobs Act (TCJA) greatly changed the tax code. This law does impact divorce. Divorces finalized in 2018 will fall under the previous tax rules while those finalized after 2018 are under the new rules. The biggest impact will occur when dealing with alimony. As noted in a previous post, available here, tax benefits once present for alimony awards are no longer available for divorces finalized after 2018.

In addition to alimony, the timing will also impact negotiations involving child support, property determinations and retirement distributions. Even those who have already completed a divorce can be impacted by these changes. This can occur if the parties choose to modify the divorce settlement agreement. If not done wisely, a modification could trigger the new rules. As such, whether considering a divorce or a modification, it is wise to seek legal counsel to understand the full impact of your decision. This will better ensure you mitigate the risk of surprises.