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Consider the changing tax laws if divorce is on your mind

Timing is everything, and that is especially true if you are close to filing for divorce.

Beginning in 2019, the changing tax laws will affect many divorcing couples, especially those who carry a high net worth.

Taxes on spousal maintenance

As of Jan. 1, 2019, spousal maintenance, also known as alimony, will no longer be tax deductible by the payor or taxable for the recipient. By the new law, the payor may end up paying less in maintenance to the recipient over time. However, if the couple were to finalize their divorce this year, the old law will remain in force for the duration of the divorce agreement.

Taxing the marital home

The new tax law reduces property tax deductibility and the amount of a mortgage that qualifies the homeowner for a deduction in interest. Furthermore, if a married couple sells the home, they could see a gain of up to $500,000 without any tax consequences. A single homeowner would be able to realize a gain of $250,000 without tax consequences. The question is, which is more advantageous: to sell the home before or after the divorce is final?

Change in exemption for children

The personal exemption amount for tax years 2018 to 2025 is eliminated in the new law, and parents are no longer given a deduction multiplier for the number of children they have. However, parents may qualify for additional and more generous child tax credits.

Taxes and the pre- or postnuptial agreement

If you have a prenuptial or postnuptial agreement, the new tax laws may affect certain aspects to which you and your spouse originally agreed.

Considering closure in 2018

If you and your spouse feel that you can resolve issues and come to an agreement about the terms of your divorce, you might want to consider mediation. It is less stressful and less expensive than going through litigation. It is also faster, which is an important consideration if the changing tax laws make a divorce settlement in 2018 advantageous for both of you. 

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