Couples considering divorcing in 2018 may want to get an agreement in place before the new year. The Tax Cuts and Jobs Act will eliminate deductions for those responsible for paying alimony for a high asset divorce. The changes affect family law matters for divorce in Pennsylvania.
Couples divorcing in 2018 can still utilize tax deductions for alimony payments. Starting in 2019, couples will no longer have the benefit of claiming a tax deduction for alimony. Properties may still be transferred under property division protocols, but the transfers won't be eligible for tax deduction. However, divorcing couples will be able to leverage retirement savings accounts for potential tax benefits. The new measure affects all family law proceedings for 2019 and later.
Less money could be available for alimony after divorce because of recent legislation changes. The drop in after-tax income may reduce funds available for alimony payments. Although the recipient of the alimony benefits from it being tax-free, there are still some disadvantages for using this approach. Instead, there might be potential benefits in using the tax-deferred retirement savings as the means to transfer assets from one account to another. Account balances can be transferred through property settlements, and funds that are transferred are not treated as cash.
Lump sum payments can be transferred in multiple ways. Lump sum payments can be performed through a transfer of stock shares, or real property can be used for lump sum alimony payments. Funds can also be transferred using a 401K or IRA savings account.
Alimony payments must now be handled strategically since the tax deduction options have changed in recent years. It may be beneficial for legal issues like custody, child support and spousal support to be handled with an experienced family law attorney. In high-asset divorces, having both a financial and legal strategy may benefit both parties.