Should I Divorce Now, Or Later?

While many couples are aware of the tax deduction change coming to alimony payments after December 31, 2018, many do not realize that that same tax law has changed a number of other aspects of divorce, and these considerations must be taken into account as well. We discuss some of these additional factors, and how they might contribute to your timeline of choices, below.

Alimony Changes

There is no question that the loss of the alimony deduction is huge and will undoubtedly affect a number of people starting next year. Nearly 600,000 taxpayers claimed alimony deductions (totaling $10 billion) in 2010 alone, and the change will cause one spouse (the payer) to lose a significant tax benefit, while allowing the other spouse (the payee) to gain a minimum tax benefit. Many are concerned that the loss of this deduction will make divorces much more difficult to resolve.

Pre- and Post-Nuptial Agreements

There are related concerns when it comes to pre- and post-nuptial agreements as well. While the freedom to contract has historically remained free from governmental interference, in this case, any contracts that pre-calculated alimony payments based on years of marriage and payments being deductible for one spouse could, in fact, be in danger.  If alimony is no longer legally deductible, it is uncertain whether these clauses will hold up in 2019 and after, and many couples may decide to renegotiate their divorce agreement before the end of 2018 as a result.

Business Valuations

Business valuations and how they relate to other assets during the divorce could also dramatically change. The new tax law increases cash flow for businesses where the business owner instead of the company pays the taxes on earnings. This means that a business that was previously worth $6 million might now be worth $9 million, which also means that more money will likely be exchanged between spouses, thereby prolonging the divorce-negotiation process.

Other Assets & Child Support

This also applies to any related assets as well. A business is often one of the most contested assets in a divorce, right alongside the family home. Who gets the business can also affect child support payments. Even though child support is statutory based, there is little room for negotiating the child support amount and, ensuring that businesses and homes are valued correctly is linked to figuring out that amount and adjusting for inflation, especially since any increased cash flow from a change in the tax law won’t be realized until taxes are filed the subsequent year. And what about weighing the valuing of getting the family home versus the value of a retirement plan? Couples will inevitably need to take a closer look at the tax benefit of different assets, especially as tax laws change in states where deductions are high for state taxes, but capped for local taxes. This means that keeping the family home could turn out to be less valuable compared to a retirement account over a longer period of time.

Florida Business-Savvy Divorce Lawyers

If you are contemplating or in the processing of obtaining a divorce—or concerned about revisiting an existing divorce settlement—contact our experienced Florida divorce attorneys at Arwani Law Firm, PLLC today to find out how we can help.

Resource:

nytimes.com/2018/07/27/your-money/divorce-tax-law.html