Right now may be the best time for those who are well off financially to get divorced. With the upcoming changes in tax laws, it may be beneficial for wealthy clients to act fast and have their agreements signed before the end of the year. In California and elsewhere, the tax burden can shift dramatically by waiting until 2019 to pursue a high asset divorce.
Professionals are working to devise workarounds for those who cannot complete agreements before the December 31, 2018 deadline. Some options to consider instead of alimony are tax-exempt retirement accounts and property change of ownership in a settlement. Converting child support payments to unallocated support that helps both spouse and children, and it is deductible, but only until 2019.
By eliminating the tax break, the federal revenue is expected to increase by $7 billion over the course of 10 years. This law is just one of many provisions in the $1.5 trillion law that will affect couples who have high incomes. The changes make it less advantageous for high-earning couples in California and other states to file joint taxes because they hit the top tax bracket quicker. The law also caps state and local tax deductions for couples to $10,000 per year, making it the same as single filers.
There is never an ideal time to get divorced, but high-earning Americans who wait to contact an attorney could pay years of support without the benefit of a much-needed tax deduction. This decision could potentially hurt the recipient spouse who may receive less money because of the tax changes. By consulting with a lawyer who has experience with a high asset divorce, a client can find creative solutions to minimize tax burdens.