A divorce is already one of the most stressful experiences many will face in their lifetime. Now, there’s a new question to answer: will the recent changes to tax laws affect my divorce accounting?
The answer to this is a resounding “yes.” Keep reading to discover how and why this is.
Alimony and Divorce Accounting
Alimony (aka maintenance) is a big part of any divorce process. Historically, most of the debate regarding this issue centered on just how much money one party would owe when it came to alimony payments. It’s a particularly delicate issue since one party might end up having to pay that amount for decades.
One of the biggest changes the government has made to divorce accounting is to alimony. It’s one that could affect both parties in a major way.
For the person paying the alimony, the amounts paid are no longer considered tax deductible, thus, considerable affecting post-divorce taxes. That’s going to make tax time that much more challenging and impactful on your bottom line when April rolls around every year.
More significantly, alimony will no longer count as income for the person receiving it. This might drastically reduce the amount that they have to pay in taxes every year.
What This Mean for You
It’s not hard to imagine that this will lead to some divorce negotiations getting even nastier, and, in many cases, being stretched for far longer than you want to think about. A survey by The American Academy of Matrimonial Lawyers concluded 64% of its members feel cases will become more acrimonious due to the new tax plan.
Since this is what most disputes over this issue will revolve around, it’s crucial that you know the timeline that you are working with.
What’s the Timeline?
For those of you who have extended your 2018 tax return, the good news about these changes to divorce accounting is that you still may qualify under the old rules. It will only affect divorces that are finalized after December 31, 2018.
This also gives you time to calculate how this will change your future taxes. Because this deals with what tax bracket you find yourself in after making payments, it’s important to determine the impact of these new laws sooner rather than later.
The Bottom Line on Divorce Accounting
Divorce is complex and stressful and these tax changes can add to that stress. That’s why you need to have an ally in your corner. Consulting with an independent tax professional will help ensure that you understand what this new tax law entails and how it will affect your divorce proceedings.
At Shuster & Company, we emphasize divorce accounting as well as many other services. We often work closely with your legal team to make sure you get what you deserve when all is said and done.
To see how we can help, contact us today for a consultation.
A full-service Certified Public Accounting Firm located in Denver, Shuster & Company PC provides quality, personalized financial advice and guidance to individuals, businesses and the legal community. We offer an extensive range of services, with emphasis in forensic accounting, business valuation, and litigation support.