Tax Law Overhaul:  This Could be a Good Year to Get Divorced

According to recent changes in federal tax law, 2018 may be a big year for divorce in the United States.

The recent revision of the tax code impacts couples who go through divorce.  Because marriage is a legal contract, it takes the legal action of a divorce to undo a marriage.  Part of that legal process involves agreements, or decisions by the court, about issues like separation of marital property, child custody and support, and spousal support.

During divorce, few couples are at their best.  Worried about their future, the impact of divorce on children, or their own economic picture, divorce is a time when a couple’s fears, frustrations, and anger come into play.  As an experienced family law firm, we routinely work with spouses struggling to make the best decisions for themselves and their family through mediation, negotiation, or traditional litigated divorce.

In Maryland, as with many states, a goal of divorce is the fair and equitable treatment of both partners in a dissolving marriage.  During the divorce process, couples must make legal agreements, or they can ask a court to make decisions for them.

When it comes to spousal support, one partner may have stepped out of the workforce or put aside educational ambitions in order to care for children or household.  That earning inequity is often balanced through payment of alimony by the higher earning spouse.

Under the current tax code, individuals who pay alimony can deduct the entire amount on their annual income tax filings.  For those in top income brackets, the deduction can be sizeable.  Because of the benefit of the deduction, alimony can be a less contentious issue because there is a built-in tax benefit for the payer.

Serious tax repercussions

While the elimination of the deduction is expected to earn the federal government approximately $7 billion over a period of ten years, the loss of the deduction could have serious repercussions for spouses with less earning capacity.  Here are several issues:

  • While spousal support can be a difficult subject, the income tax deduction sweetened the deal for the higher paying spouse. Without the deduction, the higher earning spouse has no personal incentive to create a favorable deal for an ex-spouse.
  • Women are oftentimes the lower earning spouse, especially in long-term marriages where earning capability has been diminished by years of managing a household and raising children. Because women more often initiate divorce than men, it is possible more women will opt to stay in poor relationships, rather than face a pitched economic battle.
  • The increase in the cost of alimony to a higher earning spouse could have an impact on spouses who would formerly have been willing to pay alimony with the deduction, along with child support. The lack of deduction could influence whether a higher earning partner will fund a custody battle in order to reduce child support payments, now that the alimony deduction is gone.

The change in tax code impacts all alimony agreements created after December 31, 2018.  If you are thinking about divorce, and alimony is a big issue for you as the payer or recipient, it may be a good idea to speak with an experienced divorce attorney to discuss options.

While there are workarounds through retirement accounts and redistribution of marital assets, now is a good time to understand your situation if you choose to wait until 2019 to end a marriage.

Trusted divorce law firm serves clients in Baltimore County and Baltimore City

The Law Offices of Allyson B. Goldscher, LLC provide skilled legal service with divorce, divorce mediation, and other matters of family law.  When you need friendly, experienced legal representation, contact us or call 410-602-9522 today.

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