The post How The 2019 Tax Changes Will Affect Your Divorce appeared first on Pilling Law.
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The new tax changes are here. As a result many people question whether they should have hurried up and gotten divorced in 2018. The answer is “maybe”. If you are in the midst of a divorce or are just thinking about it, you need to know how the 2019 tax changes will affect your divorce. Here is what you need to know.
For the last 75 years alimony has been deductible for the payer and taxable to the recipient. Thus, the recipient has paid income taxes on the alimony received. This all changed as of December 31, 2018. Under the Tax Cuts and Jobs Act (TCJA) alimony is no longer deductible for the payer and taxable to the recipient.
The changes are likely to bring in less money for the recipient. Why? Because the payer will have less money from which to pay without the deduction.
Example
In the following example I have used ex-husband as payer because in a majority of the cases that is the case. In an agreement drafted prior to December 31, 2018 a husband who earned $500,000 per year may agree to pay his wife $100,000 of alimony per year. He would receive the deduction and actually only be paying about $50,000 to his ex-wife. His ex-wife would be receive approximately $75,000 after taxes.
Now, because of the TCJA, a husband might argue that he can only afford to pay his ex-wife $50,000. Why? Because he will not receive the deduction. His ex-wife may not agree because she will receive $50,000 which would be $25,000 less.
Application
The TCJA will apply to those marital settlement agreements executed after December 31, 2018 and those agreements modified after that date if the modification specifically states that the TCJA treatment of alimony payments now applies.
Your Monmouth County divorce attorney can help you become educated and apprised of the impacts that the new tax changes and how they can affect your divorce. Contact me.
The post How The 2019 Tax Changes Will Affect Your Divorce appeared first on Pilling Law.
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