How New Tax Changes May Affect Your Divorce
Apr 19, 2018 | Written by: Share|
If you are divorced or getting divorced, you should be aware of how the Tax Cuts and Job Act of 2017 (TCJA) may affect you. Some of the changes may be dramatic and, although there are still many unknowns, it is possible that the TCJA may significantly affect your taxes as a divorced person, and possibly your divorce planning.
Things to consider:
- Existing divorced couples, including those who are divorced on or before December 31, 2018, will likely be able to maintain the current deductibility of alimony or maintenance.
- For couples divorced on or after January 1, 2019, alimony or maintenance payments will be treated as unallocated payments, which are not deductible to the payor nor taxable to the payee, similar to the way that child support is currently treated in New Jersey.
- It is not as simple as calculating the tax rate and simply netting the parties’ respective incomes. The new tax brackets, limits on itemized deductions, and state/local taxes will affect tax calculations and rates, which affect the income and assets available in a divorce.
- Recapture of alimony payments equating to child support are eliminated. Front loading of alimony may not be an issue, since alimony will no longer be tax deductible.
- Corporate tax rates are also supposed to decrease, which may impact business valuations and cash flow.
- The personal exemption for all taxpayers was reduced to $0.
- The standard deduction has been nearly doubled for all taxpayers.
- Deductions for property taxes above $10,000 have been eliminated.
- Moving expenses are no longer deductible.
- Deductions for legal and professional service fees (such as legal fees for tax planning and pursuit of taxable alimony) are also eliminated.
These are extremely fact-sensitive and complex areas of law. It is critical that your divorce attorney works closely with a qualified tax accountant or tax attorney to ensure that all considerations are undertaken.
Diana Fredericks, Esq., is a partner with Gebhardt & Kiefer, PC and devotes her practice solely to family law matters. She is a Certified Matrimonial Attorney and was named to the NJ Super Lawyers Rising Stars list in the practice of family law by Thomson Reuters in 2015, 2016, 2017, and 2018, and to the New Leaders of the Bar list by the New Jersey Law Journal in 2015. Contact Ms. Fredericks for a consultation at 908-735-5161 or via email.
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