Now that the new tax law is official, this is what it means for divorcing couples:
First of all, spousal support will not be deductible by the payor for any agreement executed after December 31, 2016. This means that 2016 may be a very busy divorce year. People who have been thinking about it may be more likely to take action knowing that it may be more expensive later on.
Second, there will be more litigation as the payor spouse will not want to sign an agreement they feel is grossly unfair. Divorce lawyers used to be able to “sweeten” the deal by letting the payor know that they would get a tax deduction and soon that will not be a reality.
Third, when discussing financials, child support, spousal support and its tax treatment is normally taken into account. Now that will have a “tax neutral” treatment, those calculations will need to change as well.
You might think that the receiver of maintenance will be pleased that they no longer have to pay income tax on their maintenance; however, they presumably paid the tax on a lower income. Now tax will be paid on the payor’s higher income. So, overall, there will be less money for the family.
Finally, how the new tax law may affect you depends on a lot of factors. Always check with your CPA prior to taking any action which may have a tax implication to be sure that you are making an informed decision.
The Virginia divorce attorneys at Fast Affordable Virginia Divorce Lawyers are happy to discuss your divorce questions with a free consultation, so contact us today.