Divorcing after the changes from the Tax Cuts and Jobs Act

On Behalf of | Oct 8, 2018 | Divorce | 0 comments

Couples in Tennessee who are considering divorce in which alimony will be a factor may want to look into making sure the divorce is finalized in 2018. Starting in 2019, spousal support payments will no longer be tax-deductible for the payer. Although the recipient will also not be required to pay taxes, experts say the change will probably mean less money for the recipient.

This is one of the changes brought in by the Tax Cuts and Jobs Act that was passed at the end of 2017. While most of the changes will sunset in 2025, the change in alimony will not although it is unclear whether Congress will make changes. Couples may want to include language in their divorce agreement that addresses what will happen if there is a change in the tax status of alimony payments.

Another major change is to dependent credits and exemptions. In the past, divorced parents may have taken turns claiming the child exemption. This will no longer be possible. The parent who is single, has the child at least half the time and pays at least half the household expenses will be able to claim the head of household deduction. There is also a child tax credit this parent can claim, and the IRS has not yet indicated whether this will be tradeable.

These issues may affect divorce negotiations and even decisions parents make about child custody and support. There may be other tax considerations as well that are separate from the changes related to the tax act. For example, there could be capital gains tax on the sale of some property. If an IRA is divided, it will need to be rolled into a new IRA to avoid taxes. There are other rules around dividing pensions and 401(k)s that must be followed to avoid taxes and penalties.