What does the tax cut act mean for divorces?

On behalf of Stange Law Firm, PC posted in divorce on Friday, August 10, 2018.

The president’s Tax Cuts and Jobs Act, slated to take effect Dec. 31 of this year, has added a new wrinkle to divorce proceedings in Missouri. Spouses headed for divorce and the attorneys representing them may be already either trying to rush proceedings or slow them down, depending on which one earns more money, according to the American Bar Association.

The ABA explains that the new laws have injected uncertainty into the alimony calculation process and, by extension, the entire divorce process. The new law removes the ability of the payer to deduct alimony checks from his or her annual income, while at the same time eliminating the requirement that the recipient reports them as income. Legal experts expect divorce negotiations to be much more difficult because of it.

Whereas both sides benefitted under the previous tax code, the new statute is seen to favor the recipient. That means the breadwinner is more likely to fight higher payments that previously he or she may have agreed upon knowing the amount was deductible from income, and therefore, not taxed. The recipient is at an advantage by not having to pay taxes on the income. However, recipients can expect to have a tougher fight and a smaller alimony check to cash because of it.

The real winner under this new law may be the government, following this scenario. In high-earning families, the breadwinner may pay taxes of 35 percent on his or her income, while the spouse may pay just 15 percent. The tax incentive of having less to account for as income under the previous tax rules is lost with the new regulations. Therefore, the breadwinner can claim an inability to afford that much less support. For families with much less income to split, the loss is even more significant.

The information in this article is of a general nature and not intended as legal advice.

Related Posts