ALL THE BUZZ IN THE LEGAL AND ACCOUNTING COMMUNITY RIGHT NOW IS OVER THE 2018 TAX LAWS.
If you are divorced, thinking of divorce, or in the process of divorce, then you need to know how the Tax Bill affects you and your case. I am not an accountant, I am a divorce attorney but any good divorce attorney has a phenomenal team of experts in which to work with.
I have consulted with our tax experts in order to provide you the following 6 points that you need to know about the 2018 tax laws and divorce:
1. ALIMONY IS NO LONGER TAX DEDUCTIBLE
That’s right – alimony is no longer tax deductible. This is the biggest and most earth-shattering portion as it relates to Family Law.
For anyone currently paying or receiving alimony under a final judgment, that judgment and the language regarding taxability or deductibility of the alimony payments will be grandfathered in.
However, if that alimony is modified in the future, then the tax bill will apply; the alimony payments will not be tax deductible, nor table as income to the recipient spouse. The new tax bill will apply to all final judgments (your divorce decree) that are entered after December 31, 2018. However, if you are currently in negotiations for alimony, you want to ensure to take the 2018 tax laws as well as any potential future modifications of your alimony into account when formalizing the alimony terms.
2. CHILD TAX CREDIT
The child tax credit is often an item that is negotiated during mediation or the settlement process of any case involving children. As of January 1, 2018, it will be the subject of greater negotiation because the child tax credit is now doubled. Be sure the attorney you are working with does not miss this valuable item in your agreement.
3. STANDARD DEDUCTIONS AND PERSONAL EXEMPTIONS
The personal exemptions, including the highly sought after “dependency exemption” have been eliminated. That means that if you currently have a settlement agreement which awarded dependency exemptions, which are no longer available, then this is likely grounds for modification because it changes the recipient’s net income. However, standard deductions have been doubled, which may offset some of the change.
4. 529 PLANS
Often times in divorce litigation, the parties are searching for a way to continue to pay private school despite the added expense of living in separate homes and the cost of divorce. Relief is here as 529 plans can now be used for private school tuition for grades K-12. Whether the 529 plan is being used immediately or not, be sure your divorce attorney addresses how and when any 529 plans can be utilized.
5. ITEMIZED DEDUCTIONS
Almost all itemized deductions have been eliminated. At Beaulieu-Fawcett | Newell Law Group, our team of attorneys always ensure that the itemized deductions have been accounted for in the best possible way for our clients. However, most of these itemized deductions have now been eliminated, which may trigger a modification situation for those families who have relied on large itemized deductions.
6. CHANGES TO NET INCOME
The overall tax bill will have a significant effect on the income of many families. Any time there is a substantial financial change in circumstances that was not anticipated at the time an agreement was entered into, there is a possibility of modification of that agreement. Contact our office so that one of our marital and family law attorneys can best assess your case and whether there is a potential for modification.