The new administration has ushered in a large number of changes. One of the most comprehensive is the Tax Cuts and Jobs Act. The new tax law modified many areas of the tax code. One change that can have a significant impact on many divorces is the change to tax deductions regarding alimony. Under the prior version of the tax code, alimony payments were tax deductible for the paying spouse and taxable as income to the receiving spouse. The new tax code eliminates the deduction for the paying spouse. Moreover, the receiving spouse no longer is taxed on the alimony as income. Prior to the modification of the tax code, the fact that alimony payments are tax deductible was an incentive for paying spouses to enter into settlement agreements. With this incentive now eliminated, divorcing spouses may want to consider alternatives to paying alimony.
One alternative to paying alimony to your spouse is to agree to an unequal property division. Agreeing to your spouse taking the lion’s share of the assets can take the place of the financial security that alimony was meant to provide. This method also means that the parties have a clean break. With alimony, the parties will continue to be tied together, as the paying spouse must make sure to continue making timely payments. By giving a larger property division, the necessity for continued contact for years or even decades is eliminated.
Another alternative to paying alimony is to consider other tax ramifications of your divorce and agree to allow the receiving spouse to benefit from as many of them as possible. The most common tax issue during a divorce tends to be the child deduction. A spouse who would usually pay alimony can agree to let the receiving spouse claim the children every year. Parties should also consider other tax issues, such as deduction for payment of the mortgage.
Finally, instead of structuring an agreement as alimony, parties can agree that a paying spouse will fund another goal or endeavor of the receiving spouse. Common agreements here typically involve tuition for the receiving spouse to get a new degree and thereby raise his or her earning capacity or an agreement to pay all or part of college tuition for the parties’ children. One advantage to agreeing to pay these specific costs is that there is often a definite start and end date to the obligation, and the payments can be made straight to another institution instead of to the other spouse.
Call us today for an appointment. We can talk with you about your divorce, your financial situation, and your options.
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) 738-8512, email us firstname.lastname@example.org, or contact us through our confidential online form to schedule a consultation
Download our Free Resource Guide today!