Part II: Impacts of Tax Cut and Jobs Act just starting to touch family law and estate planning


Part II: Impacts of Tax Cut and Jobs Act just starting to touch family law and estate planning

By Randy Ratliff

Divorce.

It’s a word unpleasant to most, including me. I’d like to live in a world where we would not have to deal with so much division but that is not reality. The reality is that many families are going through and will go through a divorce in 2019 and thereafter. I see my role as a family lawyer as someone to help make that process as smooth as possible for everyone involved.

One piece of divorce proceedings that have changed as of Dec. 31, 2018 was the rules for alimony deductions when it comes to taxes. The changes benefit the recipient and will mean more taxes for the person paying the alimony, an important factor in settling a divorce.

I spoke with Heather Jeffrey, a certified public accountant and the owner of Succentrix Business Advisors, about the specifics of this new tax law change. She can help give you a better understanding of what the rule was up to this point and how the tax laws have change and could impact pending divorce proceedings.

“Prior to the 2017 Tax Cuts and Jobs Act, alimony payments were treated as income to the recipient and tax deductions for the payer for federal income tax purposes,” Heather explained. “The 2017 Tax Cuts and Jobs Act eliminated the income and deductions for federal income tax purposes, beginning with any divorce agreements executed after December 31, 2018.”

Heather said she is advising anyone negotiating a divorce agreement that will be executed after December 31, 2018 to talk to their tax advisor and divorce attorney about how this tax law change will impact their individual situation. 

“Because recipients will no longer need to consider these payments in taxable income, there will be a potentially significant tax savings on the part of the recipient.  Conversely, the payer will no longer be able to deduct these payments from their taxable income,” she said. “This change will not only impact taxable income but can also impact both the recipient’s and the payer’s federal tax bracket, as well as their ability to qualify for certain other tax credits, deductions and social assistance programs.”

This does not impact anyone who signed divorce agreements before the new year began. Those couples will continue under the old tax laws. However, Heather said, the law does allow for pre-2019 agreements to be modified to adopt the new rule, as long as both ex-spouses agree to the modification.

“Both parties should consider the tax implications when negotiating alimony payments, including the amounts of potential tax savings or cost and the implications on other tax credits, deductions and social assistance qualifications,” Heather added.

Divorces are usually not simple but having all the correct information helps things go a big more smoothly for everyone involved.

Randy Ratliff is a Brentwood attorney practicing estate, family and elder law. He can be reached at trust@RandyRatliff.com or www.randyratliff.com

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