If you filed for divorce in 2018, you could be in for a big surprise if your divorce decree was not finalized or a marital separation agreement entered by December 31, 2018. Tax laws on alimony, mortgages, and dependent children changed on January 1, 2019 for the first time in 70 years and may significantly affect how to approach the divorce process.
The biggest change forthcoming is that alimony payments will no longer be tax deductible for the provider and will no longer be taxable income for the receiver. While the federal government stands to collect close to $7 billion over the next 10 years from the new tax laws, divorcing couples may have a much harder time coming to an amicable agreement over alimony payments.
The spouse that is responsible for paying the alimony will understandably fight for the lowest possible amount awarded, while the receiver of the alimony payments will fight for the highest award possible, since they will no longer have to worry about the tax burden. Since lawyer fees paid to negotiate alimony settlements are also no longer eligible for tax deduction, divorcing couples will be motivated to make their settlements as swiftly as possible.
Anyone that completed their divorce and alimony settlement prior to the end of 2018 will be grandfathered in but beware if you are planning to make amendments to your agreement. It is not totally clear at this point whether amendments will fall under the new tax laws. Anyone contemplating a change to their divorce settlement in 2019 and beyond needs to carefully consider how the new laws will affect them.
Couples who have made prenuptial and post-nuptial agreements may be facing a dilemma, even if they are not considering a divorce. The terms of the agreements may be subjected to the new tax laws. Couples that have prepared these documents should seek the counsel of a reputable financial consultant and attorney to ensure that the stipulations of their nuptial agreements have not been affected.
Tax deductions for dependent children will also change. The $4,050 exemption for each child has been eliminated and replaced with a tax credit. This tax credit has risen from $1,000 per child to $2,000 per child. Changes in mortgage interest deductions and state and local income taxes will also affect the way some divorcing couples decide to divide their property.
The mortgage interest deduction has been lowered from a cap of $1 million to a cap of $750,000. State and local tax deductions are capped at $10,000. Some couples may choose to sell the marital home due to the lowered tax deduction and motivational tax exclusions for selling a home. A single person can exclude up to $250,000 in capital gains taxes while a couple filing jointly can exclude up to $500,000 when selling their home.
Baltimore Alimony Lawyers at Huesman, Jones & Miles, LLC Help Clients Understand New Tax Laws
If you or someone you know is considering a divorce, call the Baltimore alimony lawyers at Huesman, Jones & Miles, LLC at 443-589-0150, or contact us online to schedule a free consultation today. Our experienced and knowledgeable alimony lawyers can help you understand how the new tax laws will affect you, and help you make decisions that are in your best interest. Our Hunt Valley and Towson, Maryland offices serve clients in Baltimore, Baltimore County, Bel Air, Columbia, Westminster, Essex, Monkton, Sparks, Parkton, Carroll County, Harford County, and Howard County.