Tax laws

How Divorce Tax Laws Will Change in 2019

By Dean Hedeker, Next avenue Donor

No one ever said getting divorced was easy. Besides the normal emotions of a broken relationship and family, there’s paperwork, lawyers, courts, and, of course, money. As if asset splitting wasn’t difficult enough, new tax changes coming into effect in January 2019 could add a significant amount of stress to divorces after this year.

Here’s what you need to know if you’re thinking of getting a divorce in 2019 or beyond:

4 upcoming tax changes regarding divorce

There are our main divorce tax changes from 2019.

Also on Forbes:


1. Alimony paid will no longer be tax deductible and alimony received will no longer be taxable income. For decades, alimony – usually paid by men – has been tax deductible for the person who pays it and taxable income for the person who receives it (usually women). But this basic principle of divorce will no longer apply next year and beyond, due to the provisions of the big tax law of 2017.

It could make the divorce process even stickier, overly emotional, and a whole lot uglier. The law change will be the biggest divisive issue in divorces in 2019 and, by some estimates, will net the government $6.9 billion over the next 10 years.

Due to the new tax treatment, divorced high-income spouses will fight aggressively to pay less child support, since the government will no longer subsidize these payments through the tax deduction. (It could hurt the finances of some women, whose incomes typically drop sharply after a divorce.) Low-income spouses will likely fight to get as much child support as possible, as the tax burden will be removed and payments will go further. .

The calculations of Boston University economics professor Laurence Kotlikoff in the Analyze My Divorce Settlement Estimator from his company, Economic Security Planning ($99 per year for individuals), found that the new tax law will likely lead to lower child support payments.

Incidentally, legal fees paid to lawyers helping to obtain child support will no longer be tax deductible in 2019 or later.

You will need to have a signed agreement by December 31, 2018 in order to continue playing under the traditional tax rules for alimony.

2. People who are already divorced will be grandfathered, but if their agreements change in 2019 or beyond, they could also be subject to the new rules. If the modification states that it must be governed by the new rules, then the new rules will apply. If the edit says nothing, however, the old rules will apply.

Therefore, people should be extremely careful when changing divorce agreements in 2019 and beyond.

3. Prenuptial and postnuptial agreements may also be affected by tax changes. The new rules may override many elements of these agreements, so all prenuptial and postnuptial agreements should be reviewed by a financial advisor, lawyer, or both.

Don’t be caught off guard and renegotiate terms if necessary.

4. One more thing that couples divorced in 2019 or later should keep in mind: the children will no longer benefit from the tax deduction that they had before. The 2017 tax law eliminated the $4,050 exemption for each dependent through 2025. The Child Tax Credit (which offsets taxes owed, dollar for dollar), however, doubled from 1 $000 to $2000.

Also keep in mind that the standard deduction nearly doubled due to the 2017 tax law. Single taxpayers in 2019 will see a standard deduction of $12,000; it was $6,350 in 2017.

3 divorce and tax tips for 2019

If you’re about to get divorced in the new year, here are some things you’ll want to think about:

Know right from wrong. With the new laws, you, your spouse, both lawyers, and any financial advisors you both use should look at all angles. Alimony may be the headline here, but it’s far from the only asset involved in a divorce.

Know the good assets from bad assets, tax-wise.

If you are the higher-income spouse, consider giving an Individual Retirement Account (IRA) to the lower-income spouse, if applicable, as this shifts the tax burden to the recipient when accessing that IRA. If you are the low-income spouse, know that you will inherit this burden.

Both parties need to carefully consider their total tax equations and find the best overall way to benefit financially in the short and long term.

Slow your roll. Don’t be among the first guinea pigs to file for divorce in the new divorce economy next year. As lawyers and financial advisors navigate the new world, they will discover patterns, learn new angles and tricks, and be better prepared to position you for financial success in your divorce.

Take your lumps. You might consider taking (or giving) a lump sum divorce payment instead of monthly installments in order to invest, pay for home repairs, or just be able to move on quickly.

Every financial situation is unique, so if receiving one large payment per year allows you to strengthen your financial situation in a responsible way, consider it seriously.

During a divorce, finances can lead to difficult processes and grudges. As new tax laws complicate the rules for couples in 2019, financial advisors and lawyers will need to help them navigate the new terrain together in search of the best equations and answers.