Louisiana couples who are getting a divorce will need to be aware of the effects property division and other financial elements will have on their taxes. They should also know that for divorces that are finalized after 2018, tax reform means that there will be some changes compared to previous years.
One of the biggest changes concerns alimony. For decades, alimony has been taxable to the recipient and tax-deductible for the payer. This will change for divorces that are finalized in 2019. It is unclear what effect this will also have on prenuptial agreements that address the issue of alimony including those written with the assumption that alimony would be taxed in the traditional way. The tax reforms will also affect how businesses can be valued, and people should make sure that this valuation is made to their benefit.
People need to take costs such as liens and capital gains tax into account when they are assessing the value of a piece of property. For example, a person may look at two assets worth $500,000 and $1 million and assume that the latter is the more valuable. However, if the $1 million asset is an account with embedded capital gain and the $500,000 asset is a house without a mortgage, the house could be the more valuable.
The lower-earning spouse or the one who has not participated much in the family finances may be particularly vulnerable in a divorce and may want to seek legal and financial advice regarding property division. If a couple is aware that alimony will be paid by one to the other in the divorce, they may want to make an effort to negotiate an agreement before the end of the year. However, a person should never feel rushed through this part of the process.