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How tax law changes can affect divorce

New Jersey couples thinking about divorce may wonder about the impact of new tax law changes that will go into effect in 2019. In late 2017, Congress passed the Tax Cuts and Jobs Act. While the bill was well-known for its changes to income and corporate taxes, it also contained a provision that made major alterations to the treatment of spousal support payments by the IRS. These provisions will start on Jan. 1, 2019, and they'll apply to all divorces settled on or after that date. Divorces that were already finalized before the end of 2018 were not subject to the changes, a fact that inspired many couples to escalate their timelines to complete their dissolutions before the turn of the year.

These changes reverse decades of settled policy on how alimony payments would be treated at tax time. Historically, spousal support payments were entirely tax-deductible for the payer. On the other hand, the recipient would pay taxes on the funds in their own tax bracket. This produced measurable tax savings for the paying spouse and often served as an incentive to secure generous spousal support payments as part of a divorce settlement.

Under the 2019 changes, however, the payer will not be allowed to claim a tax deduction for alimony payments. In addition, the recipient will receive the money tax-free. While this could benefit recipients, many warn that it is likely to decrease spousal support payments overall.

Many people may be unsure about how to move forward with divorce negotiations and deal with the changes to the law. A family law attorney can help a divorcing client understand the law and negotiate a fair agreement on a range of matters, including spousal support and property division.

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