When people in Illinois decide to end their marriage, they may be particularly concerned about how divorce will affect them financially. Asset division and spousal support can be some of the most contentious issues, and the changes coming in tax law with the new year in 2019 may make divorce more difficult for many.
As part of the Tax Cuts and Jobs Act, all divorces that are finalized after the new year begins will treat alimony differently than it has been in the past. Existing divorces won’t be affected, but new agreements will be. While spousal support payments are currently tax deductible by the payor, with the recipient paying taxes at his or her lower tax bracket, the change will reverse the situation. Payments will no longer be deductible, and the recipient will no longer be taxed on them. While this may seem a boon to recipients, many disagree; the deduction was a strong incentive for generous payments and tended to benefit both parties. Therefore, many people are rushing to complete a settlement before the end of the year to preserve the current tax provisions.
Property division can also be complex for people who decide to divorce in their later years, often referred to as a “gray divorce.” Because both parties are close to retirement age, the division of retirement accounts can be both complex and contentious. In addition, there could be unexpected tax consequences that benefit neither party if the division is carried out incorrectly.
People who are going through a divorce may be dealing with intense emotions, but it is critical to pay close attention to the tax consequences associated with their decisions. A family law attorney may provide guidance and representation to a divorcing spouse and work to achieve a fair settlement on issues like property division and spousal support.