If you’re one of those go-getters who is always on top of things, you may have already completed your taxes. But, if you’re like most people, you may not have yet realized how quickly April 15th is approaching and it may be time to start working on your taxes.
If you’re in the midst of a divorce, tax time presents new and unique challenges for your family. This was true even before the U.S. Congress recently passed new tax legislation. With the recent proposed changes in legislation, regardless of how you feel politically about the tax overhaul, these changes will significantly impact those whose marriages will end in the coming months.
Here are three ways the new proposed regulations could affect those considering divorce.
Alimony (Spousal Support) deductions will be a thing of the past
Starting with decrees of dissolution entered beginning in 2019, alimony, or more commonly called Spousal Support in Colorado, will no longer be deductible for the paying Spouse. This has some experts worried about a rise in contested divorce cases, not to mention a surge in divorce generally this year, because the tax incentives of paying alimony will no longer be available. Several legal professionals, including the head of the American Academy of Matrimonial Lawyers, are worried this will incentivize spouses to act less generously or fairly when it comes to supporting a soon-to-be ex, who may have a significantly lower individual income, or who may have given up a career to take care of the children and household.
Similarly, alimony will no longer be considered taxable income for the spouse who receives it. While this may seem like good news, it also means that the amount of alimony received through settlement or court order is likely to be less than parties have historically seen courts award.
It could push divorce out of reach for some
There is also fear that because alimony will no longer be tax deductible, the overall cost of a divorce will increase and limit people’s abilities to seek a divorce. . Until now, those with lower disposable incomes could perhaps still afford to get divorced because the costs of managing separate households were mitigated through these alimony tax deductions. Without them, however, couples may choose to stay in unhappy relationships longer than they should due to financial insecurity.
It could delay a recipient spouse’s ability to regain financial stability
Theoretically, these changes in how the IRS treats alimony put more money in everyone’s pocket. The paying spouse may pay less, but the receiving spouse would also no longer be required to declare alimony payments as taxable income.
However, many receiving spouses rely on alimony payments, at least initially, to support themselves while seeking work, retraining or going back to school, and planning for retirement. With less money coming in, some of these side effects of splitting one household into two may be delayed or put off entirely, leading to longer-term financial problems.
The way forward
Obviously, only time will tell if these fears will come to fruition. Ideally, both spouses will act in good faith towards each other when it comes to deciding a fair alimony amount and other aspects of their divorce. Sadly, however, not everyone is committed to negotiating fairly when going through a divorce process. It now seems more important than ever to retain counsel that is committed to telling you the truth, even if it’s hard to hear, and working toward a positive resolution of your case. It is also a good idea to explore Collaborative Divorce since the goal is the best outcome for both parties and their children.