Your divorce will change many different areas of your life, including your financial stability and…
Some Experts Say Tax Law Will Make Divorce Costlier
Kansas couples who are getting a divorce should be aware that the Tax Cut and Jobs Act, passed at the end of 2017, may affect their tax situation after the marriage ends. This will apply to parents and people who will be paying or receiving alimony.
There is no longer an exemption for children that parents can alternate taking after they divorce. Instead, the single parent who has the child living in the home more than half the time and who pays more than half of the household expenses can claim a deduction as head of household. This parent can also claim the child tax credit. The IRS has not clarified whether the tax credit is tradable, but couples can include in the divorce agreement a provision that changes may be made if regulations change. This could allow parents to share these benefits.
Alimony, formerly tax-deductible for the payer, will no longer need to be tax compliant. Although the recipient will no longer have to pay taxes on alimony, experts predict payers of alimony will resist paying larger amounts and recipients will ultimately get less money. The change in alimony does not sunset in 2025 along with most other elements of the tax act, but people may still want to make the divorce agreement flexible in case Congress makes further changes.
There are other financial issues people may need to keep in mind while negotiating property division. It is important to take into account that the value of assets could be reduced if there are taxes, penalties or other costs associated with maintaining the asset or taking distributions from it. For example, a home may be mortgage-free but there are still costs such as insurance and upkeep. Some retirement account distributions could be taxable, and there might be a capital gains tax on the sale of certain types of property.