Finalizing your divorce in 2018 can save you money

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finalizing your divorce in 2018 can save you money

If you are considering divorce, the timing, from a tax perspective, can be crucial. Many new tax laws that have been enacted have a tremendous impact on divorcing couples, especially couples with a high net worth.  And though taxes may be the last thing on your mind during this difficult and tumultuous time in your life, being informed of the new tax laws and how they affect you in your situation is extremely important.

  1. One of the most significant changes in tax law relates to taxation on alimony.

Currently, alimony can be deducted by the spouse that pays it, and is taxable to the spouse that receives it.  Under the new laws, beginning January 1, 2019, alimony will not be deductible by the paying party or taxable to the receiving party. The net result will be a higher tax outlay for the paying spouse and most likely, lower alimony payments for the receiving spouse. The new law may also affect a non-working divorced spouse’s ability to make IRA/Roth IRA contributions.

If you finalize your divorce in 2018, alimony will remain deductible by the paying party and taxable to the receiving party for the duration of the divorce agreement.  If you modify your agreement in the future, this will not change, unless your modified agreement specifies that the new tax laws should apply going forward.

  1. What to do with the family home

What to do with the family home can be a contentious issue for divorcing couples. Under the new tax laws, there is a lower allowable deduction on property taxes and the amount of one’s mortgage that qualifies for an interest deduction. Therefore, it will be costlier to own a home under the new tax laws.  As a result of the new tax laws, selling the family home before the divorce may make the most sense financially.

  1. No more multiplier for children

With the new tax code, the personal exemption amount for tax years 2018 – 2025 will be eliminated, which means that you don’t get a multiplier for your children as a tax deduction return. You will, however, need to negotiate who will claim the children on their tax return because even though the exemption will be $0, each of you may still qualify for additional child tax credits which will be higher under the new law. If your children are young, your future tax picture may improve, as the exemption is scheduled to go back to $4,000+ per person in 2026.

  1. The effect on pre-nups and post-nups

If you have prenuptial or postnuptial agreements in place, it is important for you to have the agreements reviewed before the New Year to determine how the new tax laws will impact the agreement(s). It is possible that the new tax code may invalidate some of the clauses in the agreement(s). Be sure to have your attorney review the agreement(s) before the end of the year

to determine the potential impact of the new tax laws, and if necessary, renegotiate the terms of the agreements.

The most important thing you can do right now is to educate yourself on changing laws and tax codes that may have a long-term impact on your future financial picture. Talk to your tax advisor and your attorney to get all the information you will need to minimize the negative effects of the new tax laws and make the best decisions for your financial future.

 

Source: https://www.forbes.com/sites/heatherlocus/2018/06/24/4-reasons-to-finalize-your-divorce-in-2018-to-save-money/#75dd2ab49d16

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