April 15, 2019
April 15, 2019 – Tax Day
Today is tax day. And although the Tax Cuts and Jobs Act which became law in 2017 took away the alimony deduction for newly divorced alimony payers, tax planning is still an important consideration for divorcing couples.
First of all, to clarify, if alimony was structured to be and qualified as deductible by the person paying it and included in the income of the person receiving it for couples divorced before 2019, the 2017 tax law didn’t change that. Essentially, alimony only starts being non-deductible with divorces that were finalized after December 31, 2018.
The 2017 tax law did change the value of the dependency exemption, which was often an important component of a negotiated divorce agreement before 2018. Commencing 2018, the dependency exemption was suspended. Might this suspension be a basis for renegotiating other parts of a settlement agreement? Perhaps. You may want to consult with your divorce lawyer to explore this possibility.
New limits in the ability to deduct state and local income taxes and mortgage interest might also provide the basis for modifying the divorce financial orders.
Finally, for couples divorcing now or considering future divorce, notwithstanding the changes in the tax law resulting from the 2017 tax act, it’s still probably smart to explore the tax impact of various financial scenarios with your divorce attorney or accountant as you negotiate your divorce agreement.
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