Kentucky divorces in which children or alimony are a factor will be affected by the 2017 Tax Cuts and Jobs Act. This act changed how parents can claim children on their taxes and how alimony is treated.
While divorced parents will no longer be able to use IRS form 8332 to take turns claiming their child as an exemption, one parent will be able to claim a head of household deduction as long as the parent is single, has the child in the home more than 50 percent of the time and pays more than half of the household expenses. There is also a child tax credit this parent can claim. However, the IRS has not issued guidance about whether the tax credit is tradable. Parents can create a divorce agreement that allows them to take turns using the credit if this is later allowed.
In general, making alimony tax-deductible has meant that recipients get paid more even though they have to pay taxes on it. For divorce agreements finalized after the end of 2018, alimony will no longer have tax implications for the payer or the recipient. Experts predict this is likely to lead to lower alimony payments.
Finances can be a serious concern for people who are going through a divorce. There may be other tax issues they need to consider. For example, the value of some assets may be less than it appears when taxes are taken into account. This can be an important point for couples who decide that instead of splitting assets, they are each going to take certain assets that have equal value. People should also consider the liquidity of assets and the costs associated with them.