Filing for Divorce Before the End of 2018

 Posted on August 27, 2018 in Complex Divorce

Couples who live in Texas and have unique or diverse assets and are considering divorce may want to consider filing by the end of 2018, as new federal tax laws that affect alimony payments are set to go into effect next year. To learn more about filing for divorce and the effect that the new tax law could have on your own case, please contact one of our dedicated Cedar Park high asset divorce attorneys for assistance.

Current Law

Under current federal law, those who pay alimony to ex-spouses can deduct those payments when calculating their taxable income. Similarly, alimony recipients must include spousal maintenance payments when calculating their income. This has proven to be extremely helpful to taxpayers who are being taxed at a high rate based on their income. In fact, the IRS estimates that as many as 600,000 people take advantage of this deduction. However, next year, this option will no longer be available.

New Law

As a result of the passage of the Tax Cuts and Jobs Act late last year, alimony payments will no longer be considered deductible by either the payor or the recipient as of January 2019. This change will apply to all payments made in accordance with settlement agreements or court orders that were:

• Executed after December 31, 2018; or
• Modified after December 31, 2018, but only if the modification specifically states that the new treatment of alimony payments will apply.

This change could have a significant impact on divorce negotiations between couples attempting to settle their divorces out-of-court going forward. For instance, under current law, it is often advantageous for couples to negotiate a higher alimony payment, as the paying spouse will have a higher deduction and the other spouse would receive a higher payment.

However, the new changes eliminate these advantages, which could result in longer deliberations and lower alimony payments. For this reason, some high asset couples may want to consider filing for divorce before the end of the year, as this would allow them to continue to take advantage of alimony deductions. Alternatively, some spouses may want to delay filing for divorce until next year if they expect to receive alimony, as they would no longer be required to include it as income on their returns.

Dedicated Cedar Park High Asset Divorce Attorneys

Deciding when to file for divorce can have important implications for the parties’ financial circumstances after the divorce is granted. At Powers and Kerr, PLLC, our dedicated Cedar Park high asset divorce attorneys can explain the pros and cons of filing for divorce now or of waiting until next year. Please contact us today to learn more.

Sources:

https://www.marketwatch.com/story/new-tax-law-eliminates-alimony-deductions-but-not-for-everybody-2018-01-23

https://www.nytimes.com/2018/07/02/us/politics/new-tax-law-rich-divorce.html