Finalize Your Divorce by New Year’s Eve or Pay 30 Percent More in Alimony!
Last year’s federal Tax Cuts and Jobs Act may have had corporate executives cheering, but the same can’t be said for people about to divorce. As an article this summer in Forbes explains, the act means divorce is likely to get much more expensive once the clock strikes midnight, ushering in 2019.
If you don’t finalize your divorce before the end of the year and you’re ordered to pay alimony, you will no longer be able to take advantage of the divorce subsidy, which allowed support payments as tax deductions. This means you and countless other New Yorkers will be paying more to the government than ever before — to the tune of an estimated $7 billion! As a New York divorce firm, we are infuriated by the financial burden this law will place on the people we represent.
There are four major changes that soon-to-be divorced couples need to consider as the New Year approaches. So that you’re not left regretting that you waited, here is what you need to know about how the law affects:
- Spousal maintenance — The major change in the law is that alimony will no longer be tax deductible for those paying it. The loss of the deduction could trap the payor in a higher tax bracket, so not only is the payor stuck paying tax on income going to the ex-spouse, but the payor is paying additional tax on all other income. This can mean tens of thousands in losses annually for high earners for as long as alimony is paid. Adding insult to injury, the recipient now gets the alimony payments tax free! But if you finalize your divorce by December 31, the old rules apply for every year you have to pay alimony.
- Family home tax benefits — One of the greatest assets, as well as the most contentious sticking points, is dispensation of the family home in divorce. Do you keep it or sell it? If you keep it, who lives in it? Since the new tax law “reduced the deductibility of property taxes and the amount of mortgage that qualifies for interest deduction,” it will be much more expensive to keep your home. If you sell the marital home while you are still married, you can “realize up to $500,000 in gain without tax consequences.” If you sell it after you’re divorced, that amount gets cut in half.
- Tax deduction for your kids — Either you or your ex will claim your children as a deduction, but you’ll get less from it in the coming years. It’s important to be aware of this change and reset your expectations as you work on your marital settlement.
- Prenuptial or postnuptial agreements — If you’ve written alimony provisions into your agreement they may be moot, or worse yet, they may bind you to a disadvantageous position made on presumptions that no longer hold, due to the changes in the law. If you’ve promised support thinking your payments would be tax deductible, you certainly don’t want to be held to those terms now.
If you are heading toward a divorce, any delay can cause unnecessary financial hardship. By finalizing your divorce by December 31, you can avoid all the pitfalls of the new tax law.
If you’re concerned about how the Tax Cuts and Jobs Act will affect your finances after divorce, meet with a knowledgeable Long Island divorce lawyer at Bryan L. Salamone & Associates, P.C. Call us at 1.631.479.3839 or contact our office online to schedule a free consultation.