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How tax law changes can affect divorce

When people in New Jersey decide to divorce, there are a range of financial considerations to keep in mind. Tax law changes could significantly impact when people decide to finalize the end of their marriage. Individuals concerned about these changes may find it advantageous to finalize their divorce in 2018 before the new tax rules begin with the new year on January 1, 2019.

Perhaps the most well-known change to tax laws that impacts divorce concerns alimony and spousal support, especially for wealthy couples in a higher tax bracket. At present, spousal support payments are tax-deductible for the paying spouse, often allowing them a tax savings of up to 50 percent of the total cost of their support payments. In addition, the recipient spouse pays taxes on the income in their own, generally lower, tax bracket. This enables the payments to be directed toward an IRA for retirement.

In 2019, however, all of this will change. Alimony will no longer be tax-deductible to the paying spouse, and the recipient will no longer need to pay taxes. While on its face this may appear to be a better deal for the lower-earning spouse, they will no longer be able to use those funds to save for retirement. In addition, alimony payments are likely to be lower overall as the economic effect of the support payments will change dramatically. Both parties may have a strong incentive to complete their divorce proceedings in 2018 so that their divorce falls under existing law.

The changes will only go into effect for divorcing couples who finalize their split after the new year. A family law attorney may work with a divorcing spouse to represent their interests in divorce negotiations and achieve a settlement on key issues like spousal support and property division before the end of 2018.

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