If there was ever a good time to divorce, 2018 is it…especially for wealthy Americans. That is because of the new tax law, effective January 1, 2019, that eliminates the tax deduction of alimony payments.
Financial planners and attorneys alike are warning wealthy clients to get a move on if they are contemplating divorce, because any divorce finalized or modified after December 31, 2018 will no longer have the tax benefit that kept more money in the family unit rather than in the hands of Uncle Sam.
Currently, running through the end of the year, a higher earning spouse who is often in a higher tax bracket can deduct alimony paid to a lower earning spouse who claims it as income at a lower tax rate – a win-win for the family often translating into higher support payments in exchange for the deduction.
In 2019 and beyond the benefit is lost, raising the payer’s tax burden and reducing the negotiating power of the recipient. However, agreements signed before the end of the year will still qualify for the annual deduction, which has huge financial implications for couples where one partner earns more than the other.
Of course, no one wants to counsel someone to hurry up and get divorced – it is not a decision to be taken lightly. However, if spouses have already decided to get a divorce and are just dragging their feet on starting the process, the tax savings on support paid out over the next 15 – 20 years may be substantial if they act now instead of later.
If you have questions or would like more information regarding Illinois spousal maintenance, contact the Libertyville law offices of Schlesinger & Strauss LLC at 847-680-4970.
