Managing Your Post-Divorce Finances Under the New Tax Laws
Alimony, though awarded less frequently today than it once was, is still a component in some divorces. Thanks to the changing tax laws under the Tax Code and Jobs Act, the rules that once applied will be changing as well. More specifically, parties who pay alimony will not be eligible for a tax deduction if their divorce is finalized after December 31, 2018. Learn more about how this new law may impact your post-divorce finances and discover some strategies for minimizing the damage in the following sections.
Alimony Under the New Tax Law
The new tax law removes the deduction that alimony paying spouse once received. Sadly, this can keep them in a higher tax bracket, which may ultimately impact the amount of alimony that they are willing to pay. The receiving spouse, though no longer required to pay taxes on their alimony money, may receive a lower award, thanks to their spouse’s tax bracket stance. The new tax law may also hinder negotiations, making for a longer, more drawn-out divorce, which also drives up the cost of divorce. In short, the new law could have a significant impact on the finances of all involved parties, both during and long after the divorce.
Managing Post-Divorce Finances When You Pay Alimony
If you expect to pay alimony in your divorce, it is important that you carefully consider how you will proceed with your case. While, yes, it is tempting to rush the case through (or to even simply do it yourself), there are far too many risks involved. Critical components of your case could be missed, or you may make haphazard decisions without fully considering their long-term implications. Either way, it is important that you do not attempt to rush your case for the sake of the tax deduction. Instead, plan for your divorce to take longer than anticipated and plan appropriately.
It is suggested that you start by examining your financial situation (income, assets, debts, and expenses). Once you have the information you need, it is recommended that you also consider consulting with an experienced attorney. Able to both protect your rights and inform you on how the new tax laws might impact your case, should you be ordered to pay alimony, an attorney can explain your options (i.e. offering your spouse a larger lump sum settlement in lieu of alimony). Some parties may also wish to add a financial advisor to their divorce team to ensure they are protecting their wealth and lifestyle both now and long into the future.
Managing Your Post-Divorce Finances When You Receive Alimony
After hearing that they will no longer be required to pay taxes on their alimony, receiving spouses may be tempted to try and stall negotiations. Sadly, this can do them more harm than good if their spouse is unwilling or unable to pay the same amount of alimony under the new tax law. As such, receiving parties are highly encouraged to speak with an attorney about their options under both the current and new laws. Potential recipients of alimony are also encouraged to remember that longer divorces typically cost more, and that can reduce any settlement that you may be owed in the divorce. In short, delaying divorce to avoid taxes may not be worth the cost.
Contact Our Wheaton Divorce Lawyers
At Davi Law Group, LLC, we do more than simply advise you of your options. Dedicated to your best interests and long-term financial well-being, our Wheaton divorce lawyers serve as dedicated advocates at every turn. Get the committed and comprehensive services you need. Call 630-580-6373 and schedule your personalized consultation today.