Divorce and taxes in 2019

How Taxes Impact the Financials of Divorce

When your marriage is ending, you want to negotiate a divorce settlement that protects your financial well-being. Understanding the tax implications of divorce can help empower you to achieve a decree that positions you for financial success. Here are a couple of things to know.

Beginning in 2019, there are new rules about the tax-deductibility of alimony

The Tax Cuts and Jobs Act (TCJA), intended to simplify the tax code, has impacted divorce in several ways:

Spousal support paid is no longer tax-deductible. This applies to agreements finalized after December 31, 2018; settlements established beforehand are grandfathered.
Spousal support received is no longer taxable income. For settlements reached beginning January 1, 2019, alimony payment is federally tax free to the recipient.
Modifications to divorce agreements may affect tax deductibility. It may be possible to re-negotiate an existing divorce decree to comply with the current code.
Pre-nuptial agreements may conflict with the new rules. If you have a pre-nuptial or post-nuptial agreement based on the old tax code, it may need to be modified.

Your tax situation will influence your negotiation strategy
Alimony is only one element of a settlement. Your Luma Wealth Advisor can work with you to determine the role that each asset you and your spouse own may play in an agreement, keeping your post-divorce tax situation and your spouse’s in mind. For example, in some situations, it may make financial sense to negotiate for the higher income ex-spouse to provide an Individual Retirement Account (IRA) to the lower income spouse who may be subject to a lower tax bracket.

If you’re considering divorce, learn 5 Ways Luma Wealth can Help. And for financial planning insights to help you stay in control of your future, join us for an informative Luma Wealth event.

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