Divorce and Tax Issues
Divorce and tax issues
Divorce and tax issues are topics we frequently discuss with our Nashville and Brentwood clients because the laws are always changing. For example, as of January 1, 2019 the tax laws have changed and alimony is no longer tax deductible to the payer. Another new change is taxes are not owed by the recipient. So, this is tax-free money for the recipient. This is a significant change from prior years and needs to be carefully considered when reviewing a proposed alimony amount to determine if it is "fair" to both spouses. Although alimony is not taxed to the recipient (typically the wife), if as a result of the divorce, she earns an income, she will pay taxes on her earned income and interest dividends on taxable investment accounts.
An additional new change this year is the child tax credit was increased from $1,000 per child to $2,000 per child. So, it is important during divorce negotiations to address which parent will be receiving this tax credit. The recent changes to the tax laws did not affect child support payments. They are still not deductible by the payer and not taxed to the recipient.
If you are considering divorce, it is essential that you understand all of the potential tax consequences before you accept a settlement.