Are There Any New Tax Strategies That Might Make My Divorce Negotiations Easier?
Divorce negotiations became significantly more complicated this year due to the sweeping overhaul of the tax code. Not only did a number of Americans end up owing a lot more than expected, but those who initiated a divorce this year were faced with a number of additional unforeseen consequences. Given these changes, some divorce attorneys and accountants have suggested perhaps trying a few new tax strategies in an hour to make up for some of these losses, as we discuss below.
Switching Out Alimony For A Grantor Trust
Because alimony is no longer deductible to the payer and the payee no longer has to pay taxes on it as income, alimony payments have become more costly and this has made coming to an agreement over the issue in divorce more difficult. In addition, these changes are by no means insignificant; and in fact has cost some thousands of dollars; where the loss only grows as the income and difference grows. This has understandably had a somewhat devastating effect on divorce negotiations.
One technique that some couples are using to try to get around this loss is to set up what’s known as a grantor trust in place of alimony payments. In a nutshell, this trust pays out income similarly to alimony but without the tax burden. The trusts are funded with assets to generate income and must be established after the divorce has been finalized. Because they are property settlements, they are tax-free. Other benefits include payments continuing even if the paying spouse dies and heirs continuing to receive what’s left even if the receiving spouse dies. However, it is important to note that some accountants have warned couples against this setup over concerns that the IRS could see it as disguised alimony.
Selling The Family Home
Selling the family home has also become a new priority for a number of individuals and couples. While, previously, some spouses who made less income would sometimes want to keep the marital home for the children, this is become costlier because property taxes are no longer fully deductible. And figuring out all of this is even more complicated in states where state law and standards sometimes divert from federal standards.
Trying To “Reclaim” The Dependent Exemption
The value of dependents has also significantly changed. The previous $4.050 per person exemption for each dependent has disappeared, and even though the child tax credit has increased from $1,000 to $2000, the credit starts to phase out once an individual hits a certain income. This has also affected divorce negotiations. As a result, some couples have even slightly increased the amount of time the children spend with the spouse that earns less income in an effort to save and obtain additional financial assistance down the road.
Pro Forma Filing
Finally, some accountants have suggested that couples and individuals do a practice or “pro forma” tax filing first In order to know what to expect and what they might need to change and adjust before doing the official filing. For example, some couples might find that filing their taxes jointly is more expensive than filing separately.
Contact Our Florida Divorce Attorneys to Find Out More
If you live in Florida and have any questions about divorce, contact our experienced Orlando divorce attorneys at Arwani Law Firm, PLLC today to find out how we can be of assistance.