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Tax law changes to affect divorcing couples

Changes in tax law may affect Indiana couples seeking a divorce in the year to come, especially those with significant assets to divide. Almost everyone faces extra expenses during and after a divorce, but the tax consequences of the end of a marriage can last for years to come. For couples who have a significant difference in income or have been married for a long time, spousal support can be an important part of the divorce agreements. This is especially true when one spouse has given up their career aspirations to support the other spouse or raise the children of the family.

For decades, alimony payments have been tax deductible by the payer and taxable to the recipient. The tax deduction can be significant, especially for couples with a large income and substantial assets. On the other hand, the recipient spouse pays taxes at his or her lower tax bracket. This results in an overall tax savings for the couple. In addition, the tax deduction has been key in reaching divorce settlements that include generous spousal support provisions.

However, one element of the Tax Cuts and Jobs Act passed in December 2017 will be effective starting with the new year in 2019. These changes will impact people who finalize their divorces after Dec. 31, 2018. Under the changes, alimony payments will no longer be tax deductible for the payer. In addition, the recipient will get the funds tax free. Far from a boon to the recipient, however, these policies are expected to lead to significantly reduced spousal support payments.

An individual who is considering divorce can work with a family law attorney. Legal counsel could provide advice and representation on the various divorce-related issues, including complex property division and spousal support.

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