Divorce is a painful reality for many people, both emotionally and financially. Quite often, the last thing on anyone’s mind is the effect a divorce or separation will have on their tax situation. To make matters worse, most court decisions do not consider the effects divorce or separation has on your tax situation, which is why it’s always a good idea to speak to an accounting professional before anything is finalized.
Furthermore, tax rules regarding divorce and separation can and do change – as they recently did under tax reform. Divorced and separated individuals should be aware of tax law changes that took effect in 2019.
Who is Impacted
The new rules relate to alimony or separate maintenance payments under a divorce or separation agreement and includes all taxpayers with:
Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payor.
Timing of Agreements
Agreements executed beginning January 1, 2019 or later. Alimony or separate maintenance payments are not deductible from the income of the payor spouse, nor are they includable in the income of the receiving spouse if made under a divorce or separation agreement executed after December 31, 2018.
Agreements executed on or before December 31, 2018 and then modified. The new law applies if the modification does these two things:
Agreements executed on or before December 31, 2018. Before tax reform, a taxpayer who made payments to a spouse or former spouse could deduct it on their tax return. The taxpayer who receives the payments is required to include it in their income. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications do not:
Tax reform made an already complicated situation even more so. Don’t hesitate to call if you have any questions about the tax rules surrounding divorce and separation.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.