Changes to federal tax laws will have a significant effect on how people divorce in Louisiana and across the country. As part of the Tax Cuts and Jobs Act of 2017, these changes will go into effect in 2019 and apply to all divorces finalized after Dec. 31, 2018. While many people are hurrying to complete their divorces by the end of the year, others are looking for creative solutions for 2019.
The most significant change involves the tax treatment of spousal support. Under the current system, the ex who makes alimony payments can deduct the amount paid from their taxes. For wealthy people in a high tax bracket, the savings incurred is significant. The recipient of alimony pays taxes on the income within their own, often lower, tax bracket. For divorces finalized in 2019 and beyond, however, the payer will no longer be able to take a tax deduction for the amount paid and the recipient will not pay taxes on the income. While this may seem like a positive result for the recipient, it is more likely to drive down the total amount of spousal support.
Other changes will also go into effect with the new year in 2019. The tax exemption for a dependent child will be suspended until 2025. However, this change may be a net positive for many as the Child Tax Credit will increase and the same parents who were previously eligible for the deduction will be eligible for the credit.
When people decide to divorce, financial aspects can be among the most difficult parts of the end of a marriage. This is especially true in high-asset divorces with significant wealth at stake. A family law attorney can work with a divorcing spouse to protect their interests and achieve a just settlement in any tax environment.