Tax Changes Affecting Divorce
While we are not tax professionals, there are some significant tax changes that were effective as of January 2019. These changes will have quite an effect on how settlements are negotiated in divorce, custody, and support cases.
Spousal Support / AlimonyFor divorces that are settled and finalized after December 31, 2018, all spousal support/alimony payments are non- taxable to the spouse receiving support and non-tax deductible to the spouse paying support. This is a significant change from the prior law, where spousal support/alimony was both taxable to the receiving spouse and tax-deductible to the paying spouse, providing it met the necessary criteria. This will ultimately have an effect on how spousal support is negotiated as it will likely result in less money being available for spousal support due to the inability to deduct the payments on tax returns.
Personal Exemptions and Child Tax CreditBeginning with the 2018 tax year, the federal personal exemptions for dependents have been eliminated. However, Michigan exemptions are still in place. Interestingly, while the exemptions have been eliminated, there are child tax credits and a family tax credit that are now available. It is important to keep the child tax credits in mind when negotiating tax issues in a divorce, custody, and support case.
Personal DeductionsThe personal standard deductions for taxpayers have been increased significantly, which will effect what types of personal deductions will be available. This is something to consider as one negotiates these deductions in divorce cases, particularly as it relates to mortgage interest, property taxes, and charitable contributions.
ConclusionIt will be important to consider all of these changes as you negotiate settlements in divorce cases, custody cases, spousal support and even child support cases. If you need more detailed tax advice, please consult a tax professional.