Divorcing couples in Pennsylvania may want to pay particular attention to changes in federal tax laws ushered in by the Tax Cuts and Jobs Act of 2017. These changes can have a particularly significant impact on wealthy couples with substantial incomes going through a high-asset divorce. Some people are acting as quickly as they can to finalize their divorces, as divorces completed on or before December 31, 2018 will not be affected by the changes, while others are working to develop creative solutions to the financial aspects of divorce for 2019 and beyond.
The treatment of alimony and spousal support will be particularly affected by the changes. Under current tax law, payers of alimony receive a tax deduction for the sums that they pay. For wealthy people with large incomes, this deduction can be significant and can cut their tax burden substantially. In addition, the recipient pays taxes on the income within their their own, usually lower, tax bracket. This arrangement was beneficial to both payers and recipients and led to higher spousal support payments.
Under the new tax law for divorces finalized on January 1, 2019 and after, however, no more tax deductions will be available for payers of alimony. In addition, spousal support recipients will receive the income tax-free. While this could appear to be a windfall to recipients, it is far more likely to drive down the overall amount of alimony payments. Therefore, people are looking for other creative, tax-advantaged ways to plan a divorce settlement in 2019 and beyond.
The financial aspects of a divorce can be among the most challenging, and this is especially true when tax codes are changing. A family law attorney may be able to provide strong representation to a divorcing spouse that works to protect his or her interests and achieve a fair settlement on matters including spousal support and property division.