In 2015, more than 600,000 taxpayers across the country, including many in Kentucky, were able to claim a deduction for alimony payments. However, thanks to the Tax Cuts and Jobs Act, alimony will no longer be deductible by the individual paying it and the income will no longer be taxed for the individual receiving it as of 2018.
This is a major change as The Revenue Act of 1942 has required alimony payments to be deductible by the individual paying them and taxable to the recipient for more than 80 years. Understandably, there is a scramble by many to get to their divorces completed before the 2019 year begins. After 2019, some spouses will gain benefits, and others will lose benefits.
Another change divorced individuals will notice in their tax filing will be the valuation of their business. Certain businesses, such as those classified as ‘flow-through entities,” may see an increase in their valuation. This will affect divorce negotiations in future years.
Pension funds create a different set of challenges during the divorce process. The divorcing parties could decide that the value of a pension is estimated and paid as a lump sum if access to the pension funds is not yet available. Or an agreement could be put in place whereby the spouses decide that the non-participating spouse will get shared benefits later on.
CPAs and financial advisors need to have a firm grasp on changes to tax laws that affect divorce as well as current laws that impact distribution of pensions after a divorce. They should advise their client to make decisions that will help them maintain a lifestyle similar to or better than what they had when they were married.
Family law attorneys may be able to advise their divorcing clients on things like shared accounts, the valuation of assets, the division of property, as well as other financial issues that may arise during the divorce process.