Understanding how new tax laws impact your divorce

Divorce is a complex and serious subject and should be treated as such. Finances play a role in the complexity of the divorce, that’s not new to anyone, but what is new is the closing of a rule that allows for alimony payments to be tax deductible. The change comes as part of Congresses overhaul of the tax code.

Prior the tax overhaul alimony payments have been deductible from the income of the paying spouse and taxable income to the receiving spouse. The new rules will take effect in 2019.So, what does the new law mean for those considering divorce?

As a recent article in D Magazine points out, if each of the spouses falls into different tax brackets, the impact could be major making an already difficult situation even tougher. “Say Bob receives a salary that puts him in a higher tax bracket than his wife Sally. When they divorce, if Bob pays alimony to Sally, he can deduct the alimony payment from his income. While Sally must report the alimony as income, she pays taxes at a lower rate than Bob, making the alimony dollars more valuable to Sally than to Bob. This “tax differential” motivates Bob to provide alimony when he otherwise might not, because Bob and Sally will pay less tax on the same total income. Score for Bob and Sally, but not so much for Uncle Sam.”

It’s important when selecting a divorce attorney that the attorney understands that impact the new law will have on the settlement and any alimony that will be included. Ultimately divorce is not the end of a family, it’s just a reorganization. Southern Oaks Law Firm understands this and Taylor Fontenot will work hard to make sure the settlement is fair to you.