As April 15, 2019, rapidly approaches, there are many different parts of the new tax code that can have a major impact on your taxes and your expected return. While you probably do not have time to read 12,600 pages of tax code, there are some important parts that affect your taxes after a divorce.
In the past, the person paying alimony could subtract the amount paid from their taxes while the person receiving the alimony had to pay taxes on that money. That is no longer the case. Alimony is no longer deductible, but the person receiving the payment is still must pay taxes on the money. Those divorces that were final before January 1, 2019, however, may still take the deduction. Some couples are choosing to set up Individual Retirement Accounts for the lower-paying spouse to offset the loss of the alimony deduction. Others are taking another look at their property division to offset the loss.
There are several types of grantor trusts that may be established at the time of a divorce. These include spousal limited assess trusts, Lifetime Qtip trusts, and qualified personal residence trusts. In the past, money received by the ex was taxed and not the person setting up the trust. Now, the person setting up the trust must pay the taxes. If the couple agree, then money put in a trust can be disbursed, which may have important tax ramifications for this year and into the future. In some cases, the spouse may be removed as the beneficiary of the trust.
The law caps the exemption for dependents and child tax credit at $4,050 through 2025. Generally, the parent who the child lives with the most can still claim this deduction. In the case where the child lives with both parents for the same amount of time, then the parent who contributes most to the child’s support can claim this deduction.
If the divorcing party has a prenuptial agreement, those agreements are not grandfathered. Therefore, taxes must be paid according to the Tax Cuts and Jobs Act passed in December 2017, which has now gone into effect. In some cases, these agreements may need to be renegotiated, so let a family law practice in Orlando lawyer take a look at yours.
If you are contemplating a divorce in the future, then you need to work with a competent family law practice in Orlando to understand all the tax implications and other considerations before agreeing to a divorce. Call Frank Family Law Practice at (407)629-2208 to get started. They will walk you through each step of the emotional rollercoaster of getting a divorce, and they will help you understand how it impacts many things in your future. Give them a call today.