The new changes to the tax law will have a major impact on those who are getting a divorce in 2019 and beyond. The changes were passed in December 2017 but didn’t take effect until recently. The new law, which is a sweeping change and the biggest in 30 years, will affect how taxes are filed in 2019 for 2018 and will have an impact on those filing for divorce, specifically how alimony payments are handled on a tax return. Today, we will take a look at the changes to the tax law and how they will impact your divorce in 2019 and beyond.
The Previous Tax Law
The previous tax law as it related to divorces allowed those paying alimony to claim it as an expense on their annual tax return since 1942. At the same time, the person receiving alimony had to list the payments on their tax return and claim them as income. The new law does not allow either the recipient of alimony or the person paying alimony to list the payments on their tax returns. The new law went into effect on January 1, 2019 and is for any divorce that is finalized from that date forward.
Why the Change?
For the most part, the person ordered to pay alimony to their former spouse is the one who makes more money. Because of this, the government would receive less money from tax returns. Another reported reason for the change in the law was that those making payments were claiming higher amounts than what they were paying and recipients were claiming lower amounts than what they were receiving. The tax law change does not affect any settlements reached prior to January 1, 2019. Any filings made prior to January 1, 2019 will also operate under the old law.
Other Effects on Divorce
There are a handful of other effects on divorce that will stem from the change in the tax law. One of them is that the payer will likely argue to the judge that they cannot afford the payments since the income is taxable to them. This could easily wind up lowering the amount of alimony awards moving forward. Another area that could be affected by the change in the tax law is when prenuptial agreements are written. Many couples write a clause in a prenuptial agreement regarding alimony payments and whether or not they can be taxable. Due to the change in the law this might call for a large number of agreements to be renegotiated.
Some other impacts of the new tax law on divorces moving forward include the following:
- Deduct taxes and interest of receiving the family home
- Any new home equity lines of credit cannot be deducted
- Retirement assets might see harder negotiations
- Take qualified money and roll into a Roth account
- Negotiations over who can claim the children on the tax return
- No more personal exemptions in place
- An increase in child credit
These are just a few possible impacts on divorce of the new tax law that went into effect on January 1, 2019.
Contact a Moorestown Family Law Attorney for a Consultation About Divorce in New Jersey Today
If you are thinking about filing for divorce, or if you have already started the divorce process and are dealing with another matter such as child custody, child support, or division of assets, you need to speak with a qualified attorney. The NJ family law attorneys at Cordry Hartman, LLC represent clients throughout the state, including Cherry Hill, Evesham Township, Mount Laurel and Medford. We understand how challenging this time can be for you, which is why we will fight hard to protect your interests, and the interests of your loved ones, throughout the legal process. Call us at 856-235-4511 or fill out our confidential contact form to schedule a consultation. We have an office conveniently located at 513 S Lenola Rd #212 Ste 212 Moorestown, NJ 08057.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.