Divorce brings a myriad of emotional and financial aspects to your life. It is important know and understand the changing laws in regards to your finances after your divorce. One noteworthy change is the tax code, beginning in 2019. Your Orlando Divorce Attorney can go over these changes with you and help you to understand how it will affect your past or future divorce settlements.
The first change in the 2019 tax code notes: “Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018.” Therefore, if you are anticipating a divorce where alimony is a major factor, it is important to note the tax consequences as the obligated or receiving spouse. Regardless, if you are going to be paying or receiving alimony, the new tax code will affect you after your divorce is final. As the obligated spouse, these payments whether small or large will be taxed when you make the income from your employer but are not deductible when expended on your monthly alimony payments. This lack of deduction may cause you to be listed in a different tax bracket and be taxed at a higher rate than previously thought. Understanding the amount of alimony paid annually and implementing this into your tax planning is crucial. Failure to properly plan can result in unpaid taxes at the end of the year and cause financial distress. Meanwhile, if you are a receiving spouse, you will not be taxed on the income received from alimony payments. That could be a great aid in your end of year tax reports as you have income that was received tax free. It is important to discuss such consequences with your attorney and discuss the alimony payment options in your specific case.
It clear that there is a timeline to which you must fall into in order for such changes to have an effect. If your divorce was completed prior to January 1, 2019, you will still continue your tax deductible payments and taxable income. However, there is one caveat to this expansion. Even if your case was completed prior to December 31, 2018; if you modify your alimony arrangement after this date you will be subject to this new tax code as well. “As long as the modification changes the terms of the alimony or separate maintenance payments; and states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.” Therefore, ensure before you pursue a modification that you discuss with your Orlando Divorce Attorney the tax consequences even though your original divorce decree was completed prior to the mentioned tax date.
Alimony will now be treated by the IRS in the same manner as child support, in which the payments are not tax deductible and the recipient will not be taxed. This change comes as a shock to many divorce attorneys but allows for more negotiations to take place in order to prepare for such financial discrepancies. Your Orlando Divorce Attorney can go over these regulations with you to help you understand the new tax laws and how they will affect your upcoming divorce as well as craft a settlement order that protects your family and financial situation.
Speaking to an attorney at our Orlando office is free of charge, and we accept calls 24 hours a day, 7 days a week. Contact us at 407-512-0887 or complete an online contact form to get in touch with a member of our team today. We also have offices located in Panama City, Pensacola, Fort Walton and Navarre.