Today on MYM360 – Should you get divorced this year? I raise this question because if you are thinking about it you should know that the new tax law will have a great impact on your divorce beginning Jan. 1, 2019. One of the biggest changes in the tax law will impact the tax treatment of alimony and that can impact your bottom line. I wrote an article called The GOP Tax Bill and Your Divorce that you can find on my website at www.psworth.com where I go into great detail on this topic, but here is a quick summary.
First, after Jan. 1, 2019 — which means that if you are already divorced or your divorce will be finalized before Dec. 31, 2018 the new laws will not apply to you — alimony will no longer be tax deductible by the person who pays it and taxable to the person who receives it. This breaks with a law that has been in place for 75 years and the impact will be that more money will end up being used to pay taxes which ultimately means that for the average family less money will be available for women (who are 98% of alimony recipients) and children after the divorce. If you want to see an example of this, look up my article.
So, what should you do? Should you rush to get divorced or just let things play out? It depends. The best way to make this determination is to run the numbers in your case. If you expect to receive alimony, you can probably expect to receive about 10 to 20% less than what you ordinarily would with the new law but since you won’t have to pay taxes on that money, the net effect may or may not be substantial. On the other hand, if you expect to pay alimony, you will most likely see your tax bill go up, but if you can make the argument for paying less in alimony since you don’t get a tax benefit, then the net effect in your case may or may not be substantial. But you won’t know that if you don’t run the numbers. So take a deep breath and run your numbers before you take action. And, that’s it for today.
Want more information about divorce? Check out my book, How to Get Divorced Without Losing Your Blouse and more articles at www.moneyanddivorce.com
Thanks so much for listening and as always remember that minding your money really is the path to a richer life!