The cost of divorce in 2019

September 17, 2018 by Selena Quintanilla
Alimony spelled out with blocks with a stack of money next to it

Divorce wasn't something that we discussed in our family. My grandparents married in their early teens and experienced their fair share of marital problems, but divorce wasn't an option. They were from a different time and raised under much stricter traditions. They went on to have seven children, most of whom never married. The few that did marry ended up in tumultuous relationships and eventually split from their partners, but the words separation and divorce were never spoken. We just went on with life. 

Nowadays, the taboo associated with divorce has pretty much disappeared. On average, about 40 to 50 percent of married couples in the United States file for divorce. These numbers were just that, numbers, until the end of 2016. A close friend of mine had been experiencing marital issues that lead well into the following year. Soon, she and her husband were seriously considering divorce. At the time I had just completed tax academy and earned my CTEC. Since she had been a stay at home wife for years and her husband handled finances she wanted to know how the divorce could affect her taxes. We sat down and discussed a wide array of topics. We talked about who would have primary custody of their kids, whether she planned on returning to work right away, living arrangements in the meantime, etc. The only question she wasn’t prepared for was in regard to spousal support. 
  
In 2016, a reported one out of ten divorces ended with one spouse ordered to pay alimony to the other, so the topic was of relevance. However, she explained that spousal support was the furthest thing from her mind for a few reasons. 1) She was confident her husband would help with anything they needed without being prompted by a court order; 2) She had some interviews coming up and planned on returning to work right away; and 3) She didn’t want to rely on him anymore.  
  
At the time of our talk, Congress had just announced the passing of a new tax bill, now known as the Tax Cuts and Jobs Act of 2017. The bill introduced many changes, and alimony was a big one. 
  
Before the TCJA, alimony payments were deductible, and the recipient was required to report the payments as taxable income. This was one tax concept that I understood to be both fair and concise. However, this would no longer be applicable under the new law. Divorces finalized after January 1st of 2019 no longer required the spouse receiving alimony to report the income, and in turn, did away with the deduction for the payer.  
 
We had just completed a course on this update and I wanted to be sure she understood the concept – just in case. 
  
Here is what I learned, and what I shared with her: 
  
Divorce agreements finalized before January 1, 2019, would not be subject to the TCJA alimony change. These agreements could be modified any time after 2018, but reporting the deduction of alimony payments would remain the same unless the taxpayers made specific mention of the TCJA.  
  
Taxpayers who are currently in the process of finalizing a divorce agreement should be cautious of how they tend to their tax return. The line for the alimony deduction will still be visible on Form 1040, so newly divorced couples may be tempted to claim the deduction. Incorrect claiming of the alimony deduction, or any deduction, could potentially result in unwanted attention from the IRS.  
 
It's also important to note that taxpayers who divorce after Jan 1st of 2019 cannot 'opt out' of having the new rules applied to them and therefore should make sure it is considered during the divorce negotiation. 
 
Thankfully, my friend and her husband were able to work through their issues, but this isn’t the case for everyone. In the heat of the moment it’s easy (and understandable) for certain topics to slip through the cracks. However, problems with the IRS usually last longer than marital quarrels, so understanding how life changes affect your taxes is key.

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Karen Thomas-Brandt, EA
Corporate Trainer

 

Karen Thomas-Brandt, EA, is a Corporate Trainer at TaxAudit, the largest and fastest-growing audit defense service in the country and the exclusive provider of TurboTax® Audit Defense. With more than 16 years in the tax field, Karen has prepared thousands of tax returns and defended hundreds of taxpayers in audits. In her current role, Karen specializes in researching complicated tax topics, developing workshops, and training tax professionals on effective audit representation and tax return analysis.


 

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