Divorcing your spouse is a stressful event and can be complicated. There are a multitude of important decisions to be made, many of which deal with your finances. When thinking of divorce and finances, most people immediately think of spousal support, child support, and debt division. One aspect that some overlook, however, is the impact that divorce can have on your finances at tax time.
At the end of 2017, the Tax Cuts and Jobs Act was signed into law. The new law has a substantial impact on divorces. One very significant change is with respect to spousal maintenance. For any divorce finalized after December 31, 2018, spousal support is no longer deductible by the paying spouse or taxable as income to the receiving spouse. Moreover, for divorces finalized before January 1, 2019, the new law will apply to modifications of spousal support if the document modifying the obligation specifically provides it will apply.
There are also important changes for claiming children on your taxes. In the past, during divorce or custody cases, parents would frequently debate who would be able to claim their children as dependents on their federal income taxes. However, the new tax law eliminates the dependent exemption. More specifically, the exemption is reduced to $0. However, the child tax credit is now worth up to $2,000 per child. Moreover, the tax credit can be refundable up to $1,400. The credit phaseout is increased to $200,000 for individuals and $400,000 for married couples filing jointly.
These changes have far reaching impacts on only with respect to filing your taxes, but could also come into play with divorce negotiation. In the past, who claims the child on taxes could be used as a bargaining chip or serve as a stumbling block to reaching a settlement. Now that it has been eliminated, parties will have one fewer issue to discuss during divorce negotiations. In addition, spouses being asked to pay spousal support could sometimes be persuaded to agree by the fact that paying spousal support is tax deductible. As this has been eliminated, parties discussing spousal support payments may need to look elsewhere for incentives to the paying spouse to agree to a support order.
Divorce and taxes can be confusing. We have experience helping our clients with these issues. Call us today and let us help you.
Are you interested in seeking an annulment? If so, contact Williams Law Group, LLC right away. Our family law attorneys will review your case to determine if an annulment is an option. If it is, we will guide you through the process and ensure you make the best decisions for your future. Call our office at (908) 810-1083, email us at info@awilliamslawgroup.com, or contact us through our confidential online form to schedule a consultation.
Download our Free Resource Guide today!