|
But a year does not provide much wiggle room to couples who want
to divorce and be grandfathered into the existing tax structure
- where alimony is tax deductible to the spouse paying it and
must be claimed as taxable income by the one receiving it.
Starting in 2019, alimony becomes tax neutral, meaning there are
no tax consequences for either side, much like the tax treatment
of child support.
This could cause a flood of divorces next year because alimony
will become more expensive for the person paying it, and that
may reduce the amount a spouse is willing to pay.
"When you are doing a deal, there is just so much juice you can
get out of the apple," said divorce attorney Malcolm Taub,
co-chair of the divorce and family law practice group at
Davidoff Hutcher & Citron in New York.
One hitch to getting unhitched? You cannot always rush through
the process. A contested divorce winding its way through the
courts takes at least 14 months to be finalized, although in
reality it is more like 18 to 24 months, said Chris Chen, a
certified divorce financial analysts who practices in
Massachusetts.
"Some things cannot be hurried up," Chen said.
Alimony settlements that are decided by a judge after 2019 face
another hurdle: Many state alimony statutes go by a formula
based on income net of taxes and will have to be rewritten by
legislatures.
Divorce law reform is not easy. Chen said that divorce
professionals in Massachusetts still refer to the state's
overhaul as the "new law," even though it went into effect in
2011.
Private divorce settlements can be done on a faster timeline,
but that does not mean they are any easier. Another complication
of the new tax law is that it throws a lot of unknowns into
future tax calculations for individuals.
"You truly don’t know what the tax situation will be next year,"
said Morris Armstrong, a tax and investment adviser in
Connecticut.
When you figure out an alimony settlement, look at each party's
relative tax position and how it is impacted by the divorce and
any settlement payments, Armstrong says. This is impossible to
know right now with so much in flux.
Taub, who handles clients on both sides of the alimony equation,
said the new tax situation will make already tense negotiations
even worse, and the spouse receiving alimony will end up
significantly hurt.
Armstrong agrees: "It's going to be difficult for people. They
are just going to have to do with less."
(Editing by Lauren Young and Lisa Shumaker)
[© 2017 Thomson Reuters. All rights
reserved.] Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
|
