Tax Implications of Divorce

Recent changes to federal tax laws have impacted several other aspects of the divorce process, such as:

• Alimony/Maintenance/Spousal Support: Currently, spousal maintenance is tax-deductible for the payor and taxable income for the recipient. This will remain in effect for divorces finalized before the end of 2018. For divorces finalized on January 1, 2019 and thereafter, spousal support payments can no longer be deducted by the payor, and the recipient no longer needs to claim the payments as income. This change could have significant ramifications, particularly in high net worth divorces in which the payor is pushed into a higher tax bracket.
• Allocation of Parental Responsibility: As of January 1, 2018, the standard deduction has been doubled, dependency exemptions have been repealed, and the per-child tax credit has been increased from $1,000 to $2,000. The tax credit can only be claimed if you could also claim the child as a dependent under the old rules. In the case of a divorce, if the non-allocated parent wants to claim the credit, the parent with the majority of parenting time must assign them that right by filing IRS Form 8332.
• Fewer Deductible Expenses: Divorcing spouses can no longer deduct tax preparation fees and legal fees paid specifically to secure spousal support. In addition, because the standard deduction has been doubled, fewer taxpayers will itemize deductions at all, which makes other applicable deductions potentially less meaningful when dividing assets.