On behalf of Stange Law Firm, PC posted in High Asset Divorce on Wednesday, November 22, 2017.
Missouri residents going through divorce likely understand that change is an inevitable part of life. In many instances — such as in an unhappy marriage that ends in divorce — change can be a good thing. However, almost all change should usually be considered carefully for how it may impact a person’s future. With potential tax reform on the horizon, those going through a high asset divorce should be aware of the possible changes to alimony.
Alimony — also called spousal support — are payments made from one ex-spouse to another following their divorce. These payments are usually temporary, and they are typically required when one spouse greatly out-earned the other. Currently, individuals who pay alimony can deduct those expenses on their taxes, and the receiving party must claim their alimony as part of their taxable income.
The proposed changes to alimony in the current tax reform bill would change the current setup. Alimony recipients would no longer claim their spousal support as taxable income, making it tax-free income. However, those who make alimony payments would no longer be able to deduct these payments on their federal taxes. If passed into law, the bill would not go into effect until Jan. 1, 2018, and all divorces completed before that time would remain unaffected.
Taxes are often a huge consideration during high asset divorce proceedings. Missouri individuals who pay alimony tend to be in higher tax brackets than their ex-spouses, and the deducting and claiming of spousal support usually provides certain benefits to both. Divorces that will be completed before the end of the year do not need to consider the possible implications of this change, but contentious divorces that may be ongoing should take into account how tax reform could potentially impact their financial futures.
Source: Forbes, “How Tax Reform Could Radically Change Divorce“, Nov. 9, 2017