Why it can pay—literally—to divorce before the end of the year

State laws surrounding divorce vary widely across the country, and are often open to change. Federal laws affecting divorce, on the other hand, are comparatively stable. However, there is one new federal law that stands to have a major impact on divorcing couples nationwide.

The passing of the Tax Cuts and Jobs Act (TCJA) at the end of last year made many significant changes to the tax landscape. One important change—which will go into effect in 2019—has severe implications on alimony. Experts predict that couples intending part ways may push to finalize theirdivorce before the end of the year—in order to avoid the consequences of the new tax law.

The change

Ever since 1942, alimony payers have enjoyed a considerable tax break on alimony—allowing them to pay as little as 60 cents on the dollar. For couples divorcing after 2018, however, this break will be repealed—leaving alimony payers on the hook for the full amount.

The problem

This change stands to cause a considerable disadvantage for alimony recipients. For instance, let’s take an alimony payer who earns $250,000 per year and has agreed to pay $4,000 per month in alimony to their ex-spouse. With the tax deduction under the current law, the alimony payer would only actually be responsible for $3,000 per month—even though the alimony recipient would still receive $4,000 per month.

Once this deduction is repealed, however, the alimony payer will have to pay the full amount in the alimony settlement. They would therefore have little incentive to negotiate with their ex for a higher amount.

If you are going through the divorce process and are concerned about what you may receive inspousal support, expediting the settlement process could pay off in the long run. Consult with an experienced divorce attorney to better understand your options.

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