For those Illinois spouses who are considering divorce, timing is an important consideration. That's especially true this year, as the Tax Cuts and Jobs Act will change the way that spousal support is taxed beginning in 2019. For individuals preparing for a high asset divorce, now's the time to make a number of important decisions.
Currently, individuals who make alimony payments are able to claim that expense as a tax deduction. Spouses who receive alimony must claim those payments as taxable income. However, for all divorces finalized after Dec. 31, 2018, alimony will be tax neutral. That can mean a considerable increase in tax obligations for many spouses.
The change could also be used as a negotiating tactic for some. For example, if one spouse is aware that his or her partner needs to make use of the alimony tax deduction to reduce tax obligations, that fact could be used as a negotiating tactic as the end of the year approaches. It might be easier to reach an agreement on other items of contention because the alimony issue has a definitive deadline.
For those in Illinois who are preparing for a high asset divorce, taking action now is highly recommended. Most divorce cases last longer than anticipated, and even though the year is only half over, Dec. 31 will arrive quickly. Allowing time for negotiations, paperwork issues and scheduling conflicts is important, and beginning the divorce process now is the best way to increase the chances of finalizing an agreement before the end of the year.
Source: cnbc.com, "Act now if you want to keep this tax break when getting a divorce", Lorie Konish, May 31, 2018