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New Tax Laws Have a Substantial Impact on Divorce Proceedings

Posted by Gossman Law Firm, LLC || 6-Jun-2018

The new tax plan rolled out by the Trump Administration last year has forced many people seeking divorce to ask questions about how their settlements might be affected by the tax changes. One survey from the e American Academy of Matrimonial Lawyers revealed that 2/3rds of its members anticipate bitter divorce battles due to the changes that will be impacting alimony agreements finalized after the beginning of 2019.

Under the new changes to the tax code, alimony payments will no longer be considered income for the person who receives it and can no longer be deducted by the person who has to make payments. Divorce attorneys are saying that high-earning spouses need to speed up their divorce proceeding if they want to avoid being affected by the deduction elimination that will soon take effect. On the other hand, dependent spouses are being advised by legal professionals to stall negotiations so the settlement agreement will take effect after the new year, relieving them of having to pay taxes on the alimony support they receive.

The tax law changes are forcing couples to go through drawn-out divorce proceedings because each party has incentives that do not align like they used to. The old tax code allowed a divorced household's income to receive tax relief because the higher-paid spouse was obligated to transfer their income to the lower-paid spouse. Because this tax benefit will no longer exist, divorce will be much harder for couples to afford. Unfortunately, these new financial implications can potentially force some couples to remain together in unhappy marriages.

Additional tax law changes that divorcing couples will need to consider include:

  • The Personal Exemption: This exemption will be reduced to $0 for all taxpayers this year but might return as a $4,000 exemption in 2026, unless the laws change once again.

  • State & Local Taxes: Deductions for state income and property taxes greater than a combined amount of $10,000 have been eliminated.

  • Moving Expenses: Unless one of the divorced spouses is a member of the Armed Forces, the expenses accumulated from separating the marital household will no longer be deductible.

  • Legal & Professional Service Fees: Deductions for tax preparation services, investment advisory fees, and the legal fees for tax planning are gone.

In many ways, the new alimony changes hits both the payer and the recipient because it might discourage a spouse from agreeing to pay alimony all together.

Marital Homes Will now be More Expensive to Keep

All of these new changes to the tax code will make it more difficult for couples who want to keep their marital home. Because alimony and unallocated support payments are no longer going to be considered a type of taxable income, mortgage companies will be adapting their qualification criteria and processes. Because the new law won’t allow you to deduct interest paid on home equity loans, divorced couples have a lot of new expenses to consider if they wish to keep their marital home.

Do you have more questions about how your divorce might be affected by the new tax law? The legal team at Gossman Law Firm, LLC can help you determine how to go forward with your divorce proceedings in light of these changes. Contact our Birmingham divorce attorney today to set up your free consultation.

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