The recently enacted tax law, effective January 1, 2019, will have a number of impacts on divorcing couples. The new tax law not only eliminates the tax deductible allowance of spousal maintenance for payers, but will also have implications on the valuation of closely held businesses and property tax deductions.
Alimony Under the New Tax Law
With regard to alimony, the new tax law puts more money into the hands of government by eliminating a spouse’s ability to take advantage of variances in tax brackets to keep more income in the family unit.
Currently individuals who pay alimony – presumably the higher earning spouse – are able to deduct alimony paid from their taxes while the recipient or low earning spouse claims the payments as income. Structuring payments to reduce the overall tax burden allows families to keep more of their hard earned money.
However, under the new tax law, this so called “divorce subsidy” will be eliminated to Uncle Sam’s advantage. The good news is that those who divorce on or before December 31, 2018 will be grandfathered into the prior law’s treatment, as will parties who modify existing support agreements, who can opt in or out.
The New Tax Law and Keeping the Family Home in a Divorce
The decision whether to keep the family home is all the more challenging under the new law given the caps on tax deductions starting January 1 of 2019. Unlimited property tax deductions will be a thing of the past, replaced by a $10,000 annual cap translating into a potentially higher tax bill for home owners. Maintenance, capital gains, selling costs and now fewer tax deductions all figure into the decision of whether or not to keep the home.
Contact an Illinois Divorce & Marital Property Lawyer with Decades of Experience
If you have questions regarding the new tax law’s impact on your divorce, contact the Illinois Family Law attorneys of Schlesinger & Strauss LLC for more information. We provide Family Law representation regarding Illinois spousal maintenance, marital asset & marital debt division, child custody (parenting time and responsibility) and child support, and any other Family Law questions you may have. Call us at 847-680-4970 to schedule a free initial consultation.