Divorce can be a financially stressful process with which many people in California struggle. When the stakes are high — such as in a high asset divorce — individuals may feel understandably worried about their future financial health. Here are a few things to keep in mind for those who are concerned about these issues and want to avoid potentially costly tax implications as the year rapidly draws to a close.
As most people are already aware, changes to the tax law will affect alimony. In the past, payers could deduct the costs, and recipients listed their support as taxable income, netting an overall greater savings for the couple. When the calendar flips over to 2019, those savings will disappear. Divorcing couples who still want to take advantage of these cost-savings tax benefits, and are considering finalizing the process before 2018 ends, should first decide what is most important to them, which will save time that might otherwise be spent arguing over inconsequential matters.
Rushing through divorce is not well-advised, though, so this approach will likely be most appropriate for couples who have already initiated the process and potentially already settled on certain terms. Some of these individuals may even opt to create a written agreement sometime over the next several weeks, so as to be grandfathered in to the current alimony and tax system. Couples who agree to do so might also intend to modify their agreement down the road to better reflect their future needs and wants.
The tax savings provided by the current system can be immense in a high asset divorce, and the idea of missing out can be upsetting. It may be in the interest of some divorcing couples to conclude divorce proceedings before the end of 2018 to lock in their ability to continue deducting and claiming alimony payments. However, to avoid making costly mistakes, California couples are well-advised to seek the guidance of an experienced attorney before making any final decisions.