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Tax reform law could affect divorce negotiations

When Florida couples are considering a divorce, they may not realize that federal tax law changes could also impact the end of their marriage. At the end of 2017, the Tax Cuts and Jobs Act was passed, best-known for its provisions on corporate and individual tax rates. However, there are also several provisions of the law that will affect how people deal with taxes during and after a divorce, especially after clauses related to alimony and spousal support go into effect at the beginning of 2019.

Over the years, spousal support has been handled in a divorce in a way that tends to benefit both parties. The payer, who is generally the higher earner, can deduct alimony payments from his or her taxable income, providing a significant benefit for generous spousal support when tax time rolls around. At the same time, the recipient pays taxes on the income in his or her lower tax bracket. The recipient could also dedicate alimony funds to retirement accounts with special tax status, like IRAs. This procedure will remain the same for those who complete their divorces or even separation agreements before the end of 2018.

For those who conclude their agreements in 2019 or later, however, the tax outlook will be very different. Alimony will neither be deductible nor included as income. While this may seem a boon to the recipient, it is likely to result in lower overall alimony awards.

As a result, many people are looking to complete a settlement agreement before the end of 2018 in order to lock in the current tax situation. A family law attorney can work with a divorcing spouse to negotiate a comprehensive agreement on other issues as well, including property division.

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