Divorces finalized prior to January 1, 2019 allowed a spouse paying alimony to deduct the payments from his or her taxes, often allowing divorcing couples to keep more of their money in the family unit. For example, a higher earning spouse in a higher tax bracket could deduct alimony payments form his or her income, while the lower earning spouse claimed it as income in a lower tax bracket. This resulted in less money in Uncle Sam’s pockets and more tax free money for the family.
For people divorcing on or after January 1, 2019, however, the higher earning spouse can no longer deduct alimony (spousal maintenance) payments from their income and payments are no longer taxable to the recipient at the federal level. This translates into the government getting a bigger piece of the pie in tax payments, taking money away from the family unit that could be put to better use especially if children are involved.
With the new tax rules, couples and their attorneys should look for ways to divide assets that help shield the family from taxes to make up for the difference. For example, if a couple has retirement accounts such as 401Ks or IRAs, they may want to consider transferring these accounts to the lesser earning spouse in exchange for a reduced alimony payment. This allows a higher earning spouse to make alimony payments through a retirement account to realize a tax savings.
Minimizing taxes in a divorce keeps money in the hands of the family unit, which is particularly advantageous to divorcing parents whose children benefit from the savings of tax dollars. It is important to work with an experienced attorney who can devise strategies for dividing marital property or paying spousal support that are most advantageous to their clients. Contact the Lake county family law offices of Ronald L. Bell & Associates for more information today at 847-495-6000.