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divorce tax changes with new trump tax code

January 10, 2018 /

Divorce tax changes with new trump tax code

The tax bill just signed into law will see divorce tax changes in the new trump tax code.

 The changes for those contemplating divorce or in the process of divorcing will see the handling of spousal support from a tax perspective change drastically.  This change happens in the start of 2019 so some may want to rush their divorces to have them completed by the end of 2018.


What is Spousal Support or Alimony?  Spousal support is a monetary payment made after divorce from one spouse to another to provide additional income in a situation where there is an major difference in income from one spouse to the other.

What are the reasons for Spousal Support?  One major reason is that one spouse has the ability to pay the other spouse and the other spouse has a need for that payment.   Maybe one spouse put their career on hold to take care of children and because of this hold on their career that spouse is unable to secure the same income as if they were continually working without a break in their career.  A third possibility is that one spouse worked while the other spouse earned a degree to improve or better their career.

So what's the change...
The new tax code says that the spousal support will no longer be a tax deduction for the person paying the support and additionally the spouse receiving the support does not have to pay taxes on the money.  
 
What is the impact to the couple...
  • The family will be responsible for more taxes.  The spouse with the higher income is probably at a higher tax rate and the spouse with the lower income is probably taxed at a lower tax rate.  Therefore, the family as a whole will pay more in taxes.
  • The spouse that is required to pay spousal support will push to get the divorce finalized before 2019 and the spouse that is receiving the support will try to push the divorce to be finalized after 2018.
  • The spouse paying the support will have less net income reducing the standard of living.
  • The spouse receiving the support will have more net income increasing the standard of living.
  • In states where there is a spousal support guideline calculation, unless the laws change in those states based on this new tax code, adjustments cannot be made to the calculation to adjust for the tax change.
  • In states where there are no guidelines or calculation for support, the judge will have more flexibility to make adjustments to make up for the additional taxes responsible by the paying spouse

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