Syracuse, New York residents who are high earners and considering divorce are rushing to file this summer; before the support provisions of the Tax Cuts and Jobs Act take effect in January 2019.
According to a recent article in The New York Times, Recognizing that recent changes to federal tax law will change the way alimony or spousal maintenance is taxed; many wealthier couples are rushing to get divorced before the law takes effect at the end of the year. Indeed, as of the first week of July 2018; high asset couples in New York state have been filing for divorce.
The Tax Cuts and Jobs Act (TCJA) drastically changed the way individuals, who pay and receive alimony or spousal maintenance; will be taxed on that money. As such, financial planners and divorce attorneys are warning their clients, who are considering divorce; particularly those in high asset or high net worth marriages; to file for and complete their divorces before the year ends.
Anyone who finalizes a divorce, or even modifies a spousal support agreement after December 31, 2018; will be subject to the new taxation method under the TCJA. Although many married couples, who are having problems in their marriage; think that it makes sense to take the summer; to see if divorce is really the right course of action for them; waiting until the fall to file for divorce could mean that the divorce is not finalized; until after the new year. As such, those couples would then see a drastic shift in how their alimony payments, both those paid and received; are taxed by the federal government.
Syracuse family law attorney Richard J. Bombardo emphasized that July is a good time to file to ensure that your divorce finalized before January. According to Bombardo, “if you are considering divorce and have substantial assets; it is important to file for divorce now before the year-end burst of activity hits.”
In case anyone has not followed the news coverage surrounding the TCJA and its alimony or spousal maintenance clause; it is important to understand the shift. For divorces finalized up through December 31, 2018, the payor spouse, or the person making the spousal support payments; can deduct maintenance payments on his or her taxes. This gives the payor spouse a tax break for the support payments that she or he makes. Oppositely, the payee spouse, or the person receiving the maintenance, must cite the maintenance that she or he receives as income and pay federal income taxes on it. The Internal Revenue Service (IRS) reports that about 60,000 people deduct spousal maintenance payments each year on their taxes.
Under the new terms of the TCJA, however, payee spouses will not have to pay taxes on maintenance payments received, while payor spouses no longer will be able to deduct payments made. The costs will be significant for high-earning New Yorkers who pay spousal support. Contact us at 315.488.5544 to discuss your case today.