Divorce is not a clear-cut process. Depending on your specific circumstances, you will have to handle filing paperwork, balancing the new organization of your life, attending court hearings, and dividing up your assets. Hiring an Austin divorce lawyer can help alleviate a great deal of ambiguity. However, the new tax changes taking effect in January 2019 may further complicate the division of assets in divorce cases going forward.
In the past, alimony was tax deductible for the payer and considered taxable income for the payee. This system provided an incentive for ex-spouses to pay alimony, which eased the process of divorce significantly. However, the changes from the 2017 Tax Cuts and Jobs Act will end this long-standing tenet of divorce in 2019 and beyond.
Divorce agreements signed after December 31, 2018 will be subject to this change. Alimony payments are no longer tax deductible nor considered taxable income. In addition, legal fees to help secure alimony will no longer be tax deductible. The government estimates that this change will bring in $6.9 billion in revenue over the next decade.
This change has the potential to impact how divorce proceeds in the U.S. in numerous ways. Not having tax-deductible alimony will lead to less incentive to pay alimony, which could lead to more fights and negotiations over the payment amount. As a result, the process of divorce can become more emotional, drawn out, and difficult overall. To discuss your unique situation with an Austin alimony attorney, contact Abraham Kant today.
Pre- and Post-Nuptial Agreements
The new tax laws may affect pre-nuptial and post-nuptial agreements as well. The new law may nullify certain items from the agreements. If you have a pre-nuptial or post-nuptial agreement in place, you may want to consult an Austin prenuptial agreement lawyer to determine if the new law impacts you. If this is the case, you should re-negotiate the agreement with your spouse.
Tax Deductions for Dependents
The new tax law will also change how children affect taxes – specifically, children will not be subject to the same tax deduction requirements as they were in the past. Between 2019 and 2025, the new law will remove the $4,050 exemption that used to be claimable for each dependent child. The child tax credit will increase from $1,000 to $2,000.
While this change may seem drastic and alarming, additional changes from this tax law will likely offset the dependent exemption. The standard deduction has increased as well. Single taxpayers now have a standard deduction of $12,000, an increase from the $6,350 deduction in 2017.
If you filed for divorce prior to 2019, the new tax laws will not affect your current arrangement. You can still receive the terms of your pre-nuptial and post-nuptial agreements as negotiated. However, if you or your spouse decide to modify the agreement after 2019, you may be subject to the new regulations.
If you make a modification that involves the new tax law, you will have to honor what the law says. If you make a modification that does not involve a new law, you are still subject to the old laws. Be careful when you decide to make modifications to your divorce agreement moving forward, and always consult with an attorney before pursuing a new agreement.
Tax law changes may make divorcing in 2019 seem like a challenge. However, the assistance of an Austin family law attorney can help you navigate the new rules and negotiate for an agreement that works for you. Consult with a lawyer about the new tax laws and how they will impact your divorce.