For couples planning on divorcing in the near future, it may be best to get the proceedings underway sooner rather than later. President Donald Trump signed the Tax Cuts and Jobs Act of 2017 into law on December 22nd, 2017. This law amends several provisions of the Internal Revenue Code of 1986, and a couple of the major elements of the law include increasing family tax credits and the standard deduction as well as eliminating personal exemptions. The law also makes it so that a taxpayer cannot deduct alimony payments from tax returns, and the person receiving alimony will not have to pay any taxes on it.
This law will only impact divorces that occur after December 31st, 2018. Therefore, it may work to a person's advantage to ensure the divorce becomes final before that date, so he or she can still write off alimony payments.
How to utilize the tax credit
It is already the middle of the year, so couples wanting to take advantage of current tax laws regarding alimony should look for ways to expedite the process. Anyone seeking to rush into the divorce should first consult with a divorce lawyer, financial planner and CPA to fully understand what the law entails and how it will affect their divorce particularly. Every divorce is unique, and you want to know how the law will specifically impact you.
A potential bargaining chip
With this new law, some spouses may view it as a bargaining tactic during the negotiations. For example, people on the receiving end of alimony payments may feel inclined to delay the proceedings, but a spouse may feel more open to negotiation knowing the deadline looms overhead.
With this new law coming into effect in the near future, it is also worthwhile for couples to review their prenuptial agreements. There may be provisions in the prenup that require alteration now that the spouse could not take advantage of tax incentives for alimony payments in the event of a divorce.