For better or worse, the new tax laws now in effect are creating significant ripple effects through homes across America, and some of the homes feeling it the most are those where couples are divorcing. In many ways, the changes stand to heighten both the emotions and the drama as divorcing couples realize how the new laws affect them.
How the new tax law is affecting divorcing couples
According to family law attorney Tony Gingrasso, the most noteworthy changes for divorcing couples include the following:
You can't claim maintenance as a deduction.
Maintenance is no longer tax-deductible for the person who pays it nor is it deemed taxable income for the person who receives it. “Experts worry this could complicate divorces by discouraging higher (or even fair) maintenance payouts,” says Gingrasso, “potentially leaving one of the former spouses flailing financially.”
If you’re already divorced, you can be grandfathered into the old rules.
It’s important to note that people who are already divorced will be grandfathered into the old rules as long as they don’t modify their agreements from this point on. All future agreements will be subject to the new law.
Your prenuptial agreement may be nullified.
The new law may void some conditions stipulated in any pre- or post-marital agreement, says Gingrasso. “To ensure your agreement remains effective in the future you may want to have your financial consultant, attorney or both review it in light of the new tax law.”
Tax benefits for dependents are cut in half.
The tax benefits a parent enjoys per dependent is less than half what it used to be. That’s because even as the child tax credit doubled from $1,000 to $2,000, the $4,050 exemption for each dependent was eliminated through 2025—reducing the net tax benefits of claiming dependents by $2,050.
You still have options.
If contemplating or filing for divorce, couples who look at the big picture and plan accordingly can find solutions to bring maximum benefit to both parties. “For example, you could offer an IRA in lieu of regular maintenance payments. That way, the couple can still shift the tax burden from the higher-income spouse, while offering the lower-income spouse a more livable financial package,” says Gingrasso.
While the new tax law certainly may complicate what is already a deeply emotional and stressful time in your life, having the right experts on your side can help. Be sure to bring together a qualified financial advisor and experienced family law attorney to help determine the optimal solution for you.
Information provided by Tony Gingrasso, family law attorney at Johns, Flaherty & Collins, SC. For more information on Wisconsin divorce laws, call Tony at 608-784-5678.