Trump’s administration has recently made several changes to current tax laws and among many other areas, the tax implications of divorce have been greatly affected. If there has ever been a time to “hurry up and get a divorce” it may be now.
A change in the new tax laws will eliminate a major break that many often took into consideration when contemplating divorce. That is the ability to deduct alimony or spousal support payments on your taxes. Any divorces finalized after December 31, 2018 will no longer receive the benefit of this tax deduction, which is why countless lawyers and financial advisors are warning clients who are contemplating divorce to act fast.
Agreements signed before the end of the year will still qualify for this deduction, but this can have huge financial implications when one party earns significantly more than the other. For decades, individuals paying alimony or spousal support to a former spouse were able to deduct the payments from their taxes, which often prompted the paying spouse to pay slightly more than they normally would agree to. This could have a huge impact on the paying spouse especially when there is a large gap in income between the two parties. According to the IRS, a staggering 600,000 Americans claim this deduction.
Eliminating the tax benefit will inevitably hurt certain groups more than others. For example, those who have a great disparity in income compared to their former spouse and are taxed at different rates. Under the current code, the tax breaks typically allow for negotiation of a higher alimony amount, however the new tax codes take that benefit away, either putting pressure on higher earners to pay more support or hurting the lower earning spouse. According to lawyers, the loss of this deduction will inevitably disproportionately hurt women as this New York Times Article illustrates:
At Argyris Mah, LLP, we can explain the implications of divorce and help you through the process of finalizing your divorce in the most efficient way possible. Contact us at (408) 564-5674 or firstname.lastname@example.org for a free consultation.