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Divorce and the New Tax Law

September 19, 2018

It used to be that alimony was taxable to the receiver and deductible by the payor. This is no longer true.

As of January 1, 2019, the receiving spouse will no longer declare alimony as income. This might keep her/him in a lower tax bracket. On the flip side, the paying ex-spouse will no longer receive the deduction which could keep her/him in a higher tax bracket.

If you are divorced in 2018, the deductibility can be grandfathered. Going forward, alimony may become a more negotiated item since the income is tax free to the recipient.

Another difference is the tax rate for what is called pass-through business entities. Essentially, the new tax law lowers the tax rate for owners paying the taxes on earnings, thus increasing their cash flow. An increase in cash flow may raise the value of the company.

Another potential pitfall is the house. Since there is now a cap on deductibility of state and local taxes which includes property tax, it may substantially change the economics of one spouse owning the house. It maybe more expensive to keep the house so a financial settlement needs to address the changed tax situation.

With any divorce, it is important to have an attorney. Also important, is to have a financial

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