Divorcing this year may save money

On Behalf of | Jul 5, 2018 | Divorce

The timing for filing or settling a divorce depends on numerous factors. Settlement should not be rushed merely to end a painful process. However, there are financial reasons for seeking a final decree by the end of 2018. The long-standing tax deduction for spouses paying spousal support is ending for divorces that are finalized after 2018. Beginning on New Year’s Day 2019, the paying spouse will not receive a deduction and the receiving spouse will not have to pay taxes on spousal support.

The existing advantages encourage finalizing divorces in 2018. Even if a divorce is modified in the future, the existing alimony deduction and taxable status will remain unless the modification adopts the new tax law.

The new tax law also lowers the deduction for property taxes and the mortgage rate that qualifies for the interest deduction. This will make owning a home more expensive. Selling the house permits gains up to $500,000 for couples and $250,000 for single individuals without tax consequences. Selling or keeping the family home will have greater consequences.

The new tax law also eliminates the personal exemption for tax years 2018 through 2025, which will end the multiplier of children as a deduction. Claiming the children on taxes is still important because it may allow that spouse to qualify for child tax credits. Younger children may be eligible for the exemption when it returns in 2026.

Finally, the new tax laws may require a review of existing pre-nuptial or post-nuptial agreements. It may impact some of the terms of these agreements, particularly spousal support terms that were based upon their tax deduction. An attorney can provide guidance on the best time to file or settle a divorce. In addition to finances, many aspects should be considered.

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