How the cost of divorce may go up with tax reform

For the past few decades, people paying alimony after divorce could deduct those payments on their taxes. However, the 2017 passage of the Tax Cuts and Jobs Acts changes this for new divorcees in Kentucky and throughout the country.

Starting with divorce agreements finalized in 2019, alimony will be neither tax-deductible nor tax-payable. Experts say that this will likely result in the recipient getting less money. Although many parts of the tax act will sunset in 2025, this change will not. But since it is not clear whether Congress will make changes or not, couples who expect alimony payments to extend beyond this date may want to create a divorce agreement that allows for flexibility in case there are tax law changes.

The same may be true for tax exemptions involving children. Instead of taking the child tax exemption, the parent who has the child in the home more than half the time and pays more than half of the expenses for the household can take a Head of Household deduction. The single parent who takes the HOH can also take the child tax credit. Therefore, parents may want to include language in the divorce agreement that addresses the possibility of the child tax credit becoming tradable even though this has not yet been clarified by the IRS.

Spouses facing the end of a marriage should also look at how taxes may affect the value of the property they need to divide. For example, a couple may decide that instead of splitting a retirement account, one will take a savings account while the other gets the retirement account of equal value. However, if distributions from the retirement account are taxed, it could actually be worth less. An attorney can help a spouse negotiate through the property division process.