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For the wealthy, this may be a good time to divorce

On Behalf of | Jul 19, 2018 | High Asset Divorce |

If you’re like a lot of people considering divorce, you may be delaying a final decision for any number of reasons. Maybe you still aren’t sure the marriage is over. Perhaps you hate the thought of disrupting your life with all the upheaval that comes with divorce.

Unfortunately, time may be running out on a provision in the tax laws that makes it much easier to settle the issue of spousal support. If you’re in an affluent marriage that’s troubled, the changes that are set to take effect in January 2019 may be a big concern.

In decades past, people paying spousal support to their ex-spouses could deduct the amount of the support from the federal taxes they owed. That’s a fairly big tax break that helped take the sting out of those alimony payments. For many wealthy spouses, it was also key to their willingness to provide a fairly generous amount of support without a huge legal battle. The deductions may have even allowed some paying spouses to drop down to a lower tax bracket, ultimately saving them more money than they paid/

In the new year, that all will change. New spousal support agreements will fall under the new tax code, which no longer allows alimony to be deducted from the paying spouse’s gross income.

The change in the way alimony is treated will likely hit both the paying spouse and the receiving spouse fairly hard in future agreements. Without the tax benefit as an incentive, spouses with a substantial income have no reason to agree to a higher alimony payment. That could make it far harder for divorcing couples of means to negotiate their way to an agreement without a big court fight.

How big of a bite are divorcing couples going to feel? The changes are predicted to put around $7 billion into the federal government.

The good news is that any divorces finalized before the end of the year will continue to be eligible for the old tax rules where alimony is concerned. For many, however, this means that there’s very little time left to decide to end their marriage.