High asset divorce affected by new tax code

During the process of ending of a marriage, the two parties will need to settle important financial details. When a separating couple has significant assets between them, alimony payments could be part of the financial settlement of the high asset divorce. A recent change to a long-standing tax policy may have these high-asset couples rushing to divorce before the changes come into effect in California. 

Typically, in a situation in which alimony is considered, one of the former spouses is a high-earner and the other earns less. The person with less income may have chosen to be a stay-at-home parent, or the person could have chosen to work part time or at a job that simply didn’t pay as much. At the time of the divorce, the divorcing couple may negotiate support payments to help maintain one of the spouses in the aftermath of the divorce. 

Under the old tax law, these support payments were tax deductible for the person paying the funds, and the person receiving the income was required to claim it on his or her tax return. This arrangement made the payments more affordable for the payer, allowing more generous payments to the recipient. The new tax code will eliminate the tax deduction for the payer, and it will no longer require the recipient to claim the funds. This change, which takes effect in 2019, may have significant impacts on how support payments are settled during the course of a divorce negotiation. 

An individual facing a high asset divorce in which one or both of the individuals own a large amount of assets may be wondering how the up-coming change in the tax code could affect the settlement. He or she may be wondering if it would be advantageous to end the marriage before the change goes into effect. In California, many people with questions about ending a marriage choose to consult with a family law attorney for more guidance on the issue. 

Source: brides.com, “The New Tax Code Might Lead to More Divorces in 2018“, Kimberly Lawson, Feb. 16, 2018