Going through a divorce can be extremely challenging. With so much emotion and so many decisions to make, it can often be a recipe for disaster – or at least overwhelm even the most put together individuals.
There can be a great deal of contention over distribution of assets, not to mention child custody and support. Add to the mix a new tax bill, and the impact on spousal support it creates, and it appears that things might even get harder.
Current Tax Law Favors Higher-Earner
The previous tax law allowed for the higher-earning spouse to deduct the alimony that they paid, while the spouse who received the alimony was taxed at a 15 percent rate. However, after more than 70 years, the new Tax Cuts and Jobs Act will reverse the previous arrangement.
Beginning in 2019, the spouse paying the alimony must pay federal taxes on it, and the spouse receiving the alimony is no longer obligated to. This bill will impact divorce agreements that are signed after Dec. 31, 2018. Those agreements signed before then will remain grandfathered into the old arrangement.
Due to this, it is anticipated that divorces which will involve alimony payments will be rushed to be settled before the end-of-the-year.
New Tax Law Favors Lower-Earner
Part of the problem arises from the fact that the higher-paid spouse will likely fight more vigorously to come to a divorce agreement by the end of this year, to maintain a tax deduction. Further, after 2018 ends, the higher-earner will likely seek to pay an overall lower rate of spousal support.
Meanwhile, the lower-earning spouse will fight for the opposite, looking to delay an agreement until 2019, when the law will effectively benefit them.
It is important that both parties are informed of their respective post-divorce cash flow, and how the new bill could potentially impact it.
New Tax Law Impacts Existing Prenuptial Agreements
The new law will not only influence divorcing couples, but also on those married couples who have existing prenuptial agreements.
Such prenuptial agreements often include provisions regarding alimony, which are based upon the previous tax law. Considering the future impact of the new law, these previous agreements may prove extremely detrimental.
Therefore, it could be beneficial for married couples to rework their prenuptial agreements, to account for the new tax laws, to keep from running into any marital troubles.
West Chester Divorce Lawyers at Eckell Sparks Help Clients Work with Changing Divorce Laws
If you and your spouse are currently going through a divorce, or desire to begin the process, it is imperative that individuals do what is necessary to protect their own interests. The West Chester divorce lawyers at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. will provide stellar legal guidance to you and your loved ones. To arrange a free personal consultation in one of our Media or West Chester, Pennsylvania offices, contact us online or call us at 610-565-3701 today. We represent clients in Delaware County, Chester County, Montgomery County, and the greater Philadelphia area.