Last year, Congress overhauled our tax code and made significant changes that will take effect in 2019. The new law touches on many areas of our lives - education, healthcare, and even the end of a marriage. If you're divorced or thinking about getting a divorce, it is important to understand how these changes will affect you.
When you get a divorce one of the biggest tasks you'll face is dividing and allocating your property and debts. Many times, couples consider the tax implications of these items when making these tough choices. Under the new law, many itemized deductions have either been eliminated or significantly reduced. Changes to itemization that will probably have the greatest impact on divorcing couples include two things:
- Reduced cap on the amount of mortgage interest that can be deducted each year; and
- Elimination of the home equity interest deduction.
Under the current law, a divorcing spouse may be more inclined to assume the family home's mortgage simply because it has a significant tax advantage. Under the new law, spouses may be hesitant to take on this debt when the tax benefit is reduced.
Couples going through a divorce often rely on attorneys to help them through the process. Today, taxpayers who itemize have the ability to deduct some of the attorney fees they rack up during the divorce process. For example, if you pay attorney fees while trying to secure alimony, those fees would be deductible under the current law.
The new tax law eliminates this popular and helpful deduction.
Alimony is an incredibly popular bargaining chip with divorcing couples. One spouse agrees to pay the other spouse a specific sum of money each year. The spouse who receives the alimony payments is required to include those amounts as income for tax purposes. The spouse who pays the alimony, however, is allowed to deduct the alimony payments from income for tax purposes. Spouses often agree to pay alimony because they get such tremendous tax benefit. In some cases, a spouse who pays alimony can even jump down into a lower tax bracket and pay less tax in the end.
The new tax law completely eliminates the alimony deduction. This will probably have two major consequences. First, couples may scramble to finalize their divorces before the end of the year. The deduction will only be eliminated for couples who finalize their divorce on or after January 1, 2019. Second, spouses who do get divorced in the future will probably resist paying alimony. This will make divorce negotiations more difficult and drag out the amount of time they take to resolve.
Consult With a Family Law Attorney
Are you thinking about getting a divorce? It is important to understand that the divorce process is probably going to change significantly because of these changes to the tax law. Losing out on deductions for alimony payments, home-related interest payments, and attorney fees will change how you approach the asset division part of your divorce. The best thing to do is become familiar with your options and understand how the tax law will affect your specific divorce.
The North Carolina family law attorneys at Caulder & Valentine can help you through this difficult time and equip you with the tools you need to get through your divorce successfully. Call us today to set up a free consultation and learn more.