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How tax law changes may affect divorce planning

It's not unusual for a divorce agreement in Pennsylvania to include alimony payments to the lower-earning spouse. The Tax Cuts and Jobs Act won't change the ability to receive this type of assistance. What it will do is reverse a tax law that's been on the books since 1942. With marriages that legally end in 2019 and beyond, alimony will cease to be deductible for tax purposes by the payor. Also, the recipient will not have to report such payments as income. This upcoming change has some unhappy spouses rushing to untie the knot.

If divorce arrangements are governed by a prenuptial agreement that was signed by both parties prior to marriage, there may be a need for IRS clarification. This is because some prenuptial agreements stipulate that mandated alimony payments are to be taxable or deductible by the two parties. With some divorces, it may be necessary to create a post-nuptial agreement to reflect tax law changes.

Adjustments with flow-through entities may cause businesses to be valued at a higher amount. This could, in turn, affect the division of marital assets. With pension plans, a qualified domestic relations order (QDRO) allows spouses to roll over payments without tax consequences. Penalties may still apply if one spouse opts to withdraw cash from a retirement account instead of rolling it over to a new account. A QDRO also establishes guidelines for how the non-participating spouse will receive their share of the plan's proceeds in the future.

During a high-asset divorce, an attorney may minimize tax issues for a client by checking to see if there are any instances of liens or concealed capital gains taxes that have to be paid. In some cases, higher value assets aren't always as appealing as ones with a lower total value. For instance, a home with a mortgage already paid off may be a better asset than higher-valued accounts with attached liabilities that might create a whole new set of problems for a former spouse.

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Law Office of
Katrina Luedtke LLC

Law Office of Katrina Luedtke LLC
43 West Middle Street
Gettysburg, PA 17325

Phone: 717-253-9951
Fax: 717-420-2151
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