How Alimony Will Change in 2019
When alimony is involved, separating partners spend an average of $17,700 to settle their divorces. This is a sizable amount of money that can help keep one spouse afloat while putting a significant dent in the checkbook of the other. However, it’s important to know that there are many tax-related factors to consider beyond alimony payments when creating a divorce settlement.
How Does the Tax Change Impact Alimony Payments?
Starting on the first day of 2019, recipients won’t be able to declare alimony payments as income on a tax return. While this means that you don’t have to pay tax on the money, you also don’t get to use it to contribute to an IRA. Furthermore, it can’t be used as qualifying income for a loan or line of credit. If you’re the person paying alimony, it no longer qualifies as a tax deduction. Therefore, you may be less inclined to make as large of a payment because there is no benefit in lowering your overall tax burden.
There Is No Change for Those Who Divorced Before 2019
It’s important to note that if you divorced before the start of 2019, you’ll consider alimony received as taxable income. If you make alimony payments, you’ll still get to take a tax deduction for making them. If you have a prenuptial agreement that was created before 2019, it may be possible to use the old rules when accounting for spousal support. However, be sure to consult an attorney prior to determining how these or other exceptions may apply in your case.
How Could Tax Changes Influence Other Parts of Your Settlement?
Your attorney will likely point out that changes to the tax law related to alimony won’t necessarily prevent you from getting a positive settlement. Instead, it means that it will be necessary to craft a new strategy to obtain the financial resources needed. For instance, you could ask for a greater portion of a marital asset such as money inside of a retirement account. You could also ask for a greater share of the proceeds from selling a home or other valuable assets.
Don’t Forget About Tax Credits Available
Even if you receive less in alimony than you would have by finalizing a divorce in 2018, other changes to the tax code could help make up for that loss. For instance, the child tax credit could result in up to $2,000 per qualifying child going to your bank account. Since a credit reduces your tax liability for each dollar the credit is worth, you could obtain a refund if it results in a negative tax balance.
Other credits or deductions may be available for parents who claim head of household status. Head of household is generally available if you contribute more than 50 percent of the cost of running a home that a child occupies more than 50 percent of the year.
Compromise Is Key When Crafting a Divorce Settlement
It is important to know what you need, what you want and what you can live without when it comes to negotiating a divorce settlement. This can work to keep your divorce costs to a minimum. Furthermore, it can keep relationships strong between ex-spouses who may work together or have kids.
Your divorce attorney may be able to help when it comes to creating a list of priorities prior to the start of settlement talks. Recipients should know that alimony is partially based on your ability to pay or your ability to provide for yourself on a single income. Therefore, it is important to structure alimony payments in a manner that both sides can be content with.
If you need assistance negotiating a divorce settlement involving spousal support, get in touch with the Law Office of Joanne Kleiner today. This can be done by calling our Jenkintown, PA, office at (215) 886-1266 or by sending a fax to (215) 886-2670.