Changes to tax laws impact divorce settlements

In 2019, tax changes have significantly impacted divorce settlements. In 2018, it was announced that alimony would be taxed, and that meant that anyone who finalized a divorce in 2019 would face new tax liabilities. The spouses who pay alimony can't deduct alimony on their taxes any longer, and those who receive it don't have to claim it as income.

Unfortunately, taking away the tax break has impacted people's alimony payments and made it harder to arrange alimony during a divorce. Of course, not having this tax break does slow down negotiations, since it can have a significant impact on how much the payer earns (and pays in taxes) for the year.

The good news is that there is a way around this with a trust. Setting up a trust for a former spouse allows a payout each month or in a lump sum equivalent to alimony, but there is no taxation. Instead of listing it as alimony, it becomes a property settlement, which is not taxed.

Keeping the family home has also become more expensive in 2019, impacting divorce negotiations. Limitations on state and local taxes meant that some people saw their taxes, particularly property taxes, increase. Those in high-property-tax states may now have no choice but to sell to avoid a heavy tax burden.

Your attorney can talk to you about changes in tax law, so you can get to know your options. Your negotiations may change this year, but if you know how you'll be affected on your taxes, you can make solid decisions to benefit your finances moving forward.

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