With 2018 ending in a few weeks, unhappily married couples who are thinking of splitting up should consider the tax consequences of waiting until after the new year.
Under the new tax law enacted by Congress and the Trump administration, the rules regarding alimony will be different. Under the new law, the person who pays the alimony (otherwise known as maintenance in New York State) will no longer be able to write it off their taxes(deduct it from their income); meanwhile, those who receive alimony will no longer have to declare it as taxable income. If the paying spouse wishes to avoid this scenario, it is wise for to file for divorce before the end of the year. Those couples who already divorced will be grandfathered in — which means they will not be subjected to the new alimony law — unless they decide to modify their agreements next year.
Furthermore, the attorneys’ fees that were paid in order to secure the alimony will no longer be considered a tax deduction. Also, if a prenuptial or a postnuptial agreement was signed, some of those items may become null and void. It is best to consult a divorce attorney or financial planner to see what can be done to minimize the impact.
For divorced couples with children, it should be noted that the child tax exemption of $4,050 for each child has been eliminated through 2025. The good news is that, the child tax credit has doubled from $1,000 to $2,000; single filers may see a standard deduction increase by almost 100%, from $6,350 in 2017 to $12,000 next year. (Please do not rely upon tax information contained herein, but rather consult with an accountant regarding any tax issues and/or questions.)
According to Forbes, these changes to alimony will result in the federal government collecting an additional $6.9 billion in revenue over the next decade. But that is little to no solace for couples looking to divorce. High-net worth individuals who are paying spouses will seek to pay less maintenance since they will no longer receive the tax deduction they have enjoyed in the past. Low-income non-paying spouses, meanwhile, may want an increase in alimony payments since the money will no longer be subject to taxes. However, Laurence Kotlikoff, an economics professor at Boston University, told Forbes that spouses expecting to receive alimony in 2019 will receive less of it once the new tax law kicks in.
Getting a divorce is very stressful and the new tax law regarding alimony and divorce will only add to the complexity. If you are looking to file for divorce before the end of the year, be sure to seek the guidance of an experienced New York family law attorney to protect your rights and interests. Call the New York divorce lawyer Heather A. Fig at (631) 419-6111 for more information or to schedule a consultation.