Question

New tax law will make divorce more expensive for some

Posted: Dec 04, 2018 9:20 PM ESTUpdated: Dec 04, 2018 9:46 PM EST

By Steve Price, Reporter

SAN DIEGO (NEWS 8) — If you're waiting to finalize your divorce, you may want to do so before the start of the new year.

New tax laws that take effect January 1 will make the process more expensive.

Nobody gets married thinking they'll get divorced, but a shattered marriage could break your heart - and your bank starting in 2019.

Attorney Deanne Arthur says the problem is a new tax law.

“I don't think either party is going to be happy with this new change,” said Arthur.

In the past, the person paying alimony could deduct that amount from their taxes - leaving them with more money. But under the new tax law, for any divorce finalized starting January 1, alimony payments will have to be made with after-tax money. And that's not just a bad thing for the person paying, it's also bad for the spouse collecting the alimony.

“The person on the other end is going to get less money because there is less money available for the other party to be able to pay from - and the court considers that,” said Arthur.

So, who wins from this change?

The federal government, which will receive $6.9-billion in new tax revenue over the course of a decade. That's $6.9-billion less in the pockets of divorced individuals.

Arthur says couples with one spouse making a lot of money and the other staying home will be among those hit the hardest by this change, especially if their wedding was more than 10 years ago.

“Those long-term marriages where you had one spouse that's been at home with no resume, no job prospects, it would be unreasonable to say, ‘hey, get on your feet now that you divorced after 17 years,’” said Arthur.

If your marriage is on the rocks and you haven't started divorce proceedings, you're already out of luck with the tax break; California law says you have to file for divorce six months before it can be finalized.

“The new clients calling wanting this desperate divorce can't really do anything,” said Arthur. “They're a little behind the eight ball now that we're in mid-December.”

Explain the economics behind it (and whatever optimal solutions there may be). Consider economic incentives and impacts?

Answer 1

In the Short term, Tax system of Divorce will get more impact positively as well as negatively. The new tax law which is introducing on 2019 will lead to a countless of positive economic consequences, from workers getting bonuses to Americans getting bigger paychecks. But one unexpected result of the new tax overhaul could be a rise in the divorce rate as compared with previous year.

U.S. tax code has usually enclosed what is known as a “marriage penalty” for years, there are some provisions in the new code that make worse the downsides of saying, “I do,” Jamie Hopkins (Associate professor of taxation at The American College of Financial Services), told FOX Business. In fact, Hopkins said, recent changes “might create a lot of divorce filings this year.”

“The next two years will be very good years for divorce attorneys,” Hopkins said.

While some couples may seek to finalize divorce agreements, or file for divorce, before year’s end, Hopkins said there could be another unusual effect resulting from the Tax Cuts and Jobs Act.

Naturally in the U.S. tax system, two persons with similar, higher incomes tying the bind are penalized because they are pushed into a higher income, Thus exemptions remain same. The new tax bill of 2019 changed many popular deductions, some cases, will have a exaggerated impact on wedded couples filing in cooperation.

Kevin de Leon, a member of the California state senate, stated that the Tax Cuts and Jobs Act imposed a $10,000 cap on state and local tax deductions, well below the average amounts claimed by individuals residing in states like New York, California and New Jersey. Earlier law, the higher-earning spouse, could deduct child support payments on his or her tax filings. The recipient included the payments as part of his or her taxable gross income.