Rarely would we recommend speeding up the process of divorce. In the vast majority of cases, Henry + Dow wants to encourage married couples to contemplate if divorce is the right decision for their circumstances. Given all the difficulties that come with divorce, we want to ensure that choosing divorce is the best choice for a couple.
If however, the decision to proceed with divorce has been all but made, then the implications of a new tax law might be an incentive to consider going through with and finalizing the divorce before the end of the year.
According to the new law, any divorce agreements that are made or modified after December 31, 2018, will no longer be eligible for a tax break on alimony payments. As it currently stands, the wealthiest Americans benefit the most from the tax break because of their top tax rate, as they can deduct whatever the alimony amount from their income before figuring the amount owed in taxes for the year.
The new law will have the most significant impact on divorcing couples whose income differs largely. The person paying the alimony will no longer have the incentive to pay a higher amount for the benefit of the tax break (if they have a higher income). Therefore, these changes could lead to a potentially more contentious and lengthy divorce proceedings.
Financial planners and family lawyers are finding ways to skirt around the new tax law for the wealthiest of divorcing couples. If couples can accept property or retirement savings accounts that are taxed at a lower rate (or not at all), instead of paying alimony altogether, couples could take their time to figure out a plan that works best instead of rushing to divorce by the codified date.
What does this mean for you?
If you earn significantly more than your spouse and you’ve made the difficult decision to go ahead with divorce, don’t hesitate to call one of our family attorneys at Henry + Dow. It is important to secure your tax breaks on alimony payments before the end of the year, or you could be stuck with paying years of support and all of the tax burden for it. Our team of expert family attorneys can plan and make provisions for you as you navigate a difficult time in life.