Are you awaiting a final judgment of divorce? Or maybe you are only beginning to consider ending your marriage. Regardless, the implications of the new tax laws take effect in January 2019. Some projections have the government taking in nearly $7 billion in the next decade due to the implementation of these laws.
What does that mean to divorcing Minneapolis couples? Like others around the nation, the implications are considerable and could potentially lengthen your divorce negotiations. Below is information of which all divorcing couples need be aware.
Changes to spousal support
Also known as alimony, any spousal support that is paid can't be deducted on the payor's taxes. Neither can spousal support that's received be treated as taxable income for the payee.
Savvy readers will recognize that this particular change could cost them more in legal fees to negotiate with opposing counsel. Bad news here, too, as no longer will legal fees paid for seeking alimony be tax-deductible after Jan. 1, 2019.
Those spouses who earn higher incomes will try to pay less in spousal support since their payments will no longer be subsidized as tax deductions. Lower-earning spouses will likely seek higher support amounts to maximize the payments' tax-free status.
Beware of modifying prior orders
If your divorce was finalized on or before Dec. 31, 2018, you are grandfathered in under the old rules. But should your circumstances — or those of your ex — require a future modification, either party can ask that the new agreement be subject to the new rules.
Prenups at risk
Even a well-crafted pre- or postnuptial agreement could possibly be affected by these changes. Some provisions of these agreements could be nullified by the new laws. If you have a prenup or postnup in effect, it's prudent to ask your financial adviser and legal counsel to review it now to see if it will stand up under the new laws.
Kids and tax deductions
Again, this is a major change, as divorcing parents frequently used the status of the kids as tax deductions during settlement negotiations. Prior to the changes, a parent could claim each minor dependent for a $4,050 tax exemption. Through 2025, that's gone. Alternatively, the child tax credit that was $1,000 is now doubled to $2,000.
There are a lot of changes afoot, and any Minnesota residents who file for divorce will be affected. Remember, knowledge is power, so learn all that you can about your rights in divorce before filing.