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Coming tax changes create urgency to settle divorces in 2018

| Nov 28, 2018 | Family Law |

Alabama spouses who are ending their marriages have new tax laws to consider, especially if alimony could be part of the final divorce settlement. The Tax Cuts and Jobs Act will end tax deductions for payers of alimony or spousal support. Divorces completed after Dec. 31, 2018, will be subject to this tax rule. Starting in 2019, those with spousal support obligations will pay income tax on those funds before sending the money to former spouses. This could force some payers into a higher tax bracket. This possible outcome has motivated some people to complete their divorces before the year’s end.

The insights of a financial planner could help someone determine how the changing tax rules could influence long-term expenses and income. If settling a divorce in 2018 appears likely to lower long-term costs, then a person might want to finish a divorce prior to the New Year. If the divorcing spouses can work out a tentative agreement in 2018, then the old tax rules would be locked in even if the parties modify the terms in the future.

To accomplish a speedy divorce, people should think about what they need most from the divorce settlement and compromise on other issues. Alternatively, someone might avoid alimony payments by proposing a deal that allows the high-income person to keep taxable assets and grants tax-deferred retirement assets to the lower-income person.

Because every marital household has unique financial characteristics, the advice of an attorney could improve a person’s ability to navigate long-term decisions. An attorney could explain how spousal support might be calculated or suggest how to divide marital property and limit tax consequences. Legal counsel could also manage all of the paperwork for the court.