One of the most important aspects, often forgotten about, is the tax consequences as you go through separation and then divorce. I always tell those who are going through separation and divorce to consult your tax practitioners. Go to one that really understand the tax rules of separation and divorce. The IRS has guidelines to follow. Do your own due diligence in knowing your financial and tax situation. You need to understand the separation agreement and all the way through to the final divorce decree, it will affect your tax situation.
Taxpayers should be aware of tax law changes related to alimony and separation payments. These payments are made after a divorce or separation. The Tax Cuts and Jobs Act changed the rules around them, which will affect certain taxpayers when they file their 2019 tax returns next year.
Here are some facts that will help people understand these changes and who they will impact:
- The law relates to payments under a divorce or separation agreement. This includes:
- Divorce decrees.
- Separate maintenance decrees.
- Written separation agreements.
- In general, the taxpayer who makes payments to a spouse or former spouse can deduct it on their tax return. The taxpayer who receives the payments is required to include it in their income.
- Beginning January 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after December 31, 2018.
- If an agreement was executed on or before December 31, 2018 and then modified after that date, the new law also applies. The new law applies if the modification does these two things:
- It changes the terms of the alimony or separate maintenance payments.
- It specifically says that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.
- Agreements executed on or before December 31, 2018 follow the previous rules. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications don’t do what’s described above.
- Publication 504, Divorced or Separated Individuals
- Publication 5307, Tax Reform: Basics for Individuals and Families