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New tax laws could make cost of divorce increase

People in Illinois who are getting a divorce and who anticipate giving or receiving alimony payments might want to try to complete their divorce before the end of 2018. Starting in 2019, alimony will no longer be tax-payable or tax-deductible, and experts say it is likely this will not benefit either the payer or the recipient.

This change was part of the Tax Cuts and Jobs Act that was passed at the end of 2017. Unlike other parts of the act, it is not supposed to sunset after 2025 although it is not clear what Congress may decide regarding alimony. Couples may want to include a provision in their divorce agreement that allows for flexibility regarding alimony in case the law is changed again.

Alimony is only one of several changes ahead for people who are divorcing. In the past, parents could take turns claiming a child as an exemption. However, that will no longer be possible. Instead, one parent can claim a head of household exemption. This is likely to lead to significant savings, so they will need to discuss this during divorce negotiations. The IRS has also not released information on whether the child tax credit will be tradeable. Parents may want to leave their divorce agreement flexible in case this is later clarified.

Attorneys may be able to assist couples in creating this agreement. There may be other complex issues of property division to address as well. For example, if the couple has a 401(k) or pension plan to divide, they will need a document called a qualified domestic relations order to avoid taxes and penalties. Selling some types of property could result in capital gains taxes in some cases. There may also be rules associated with the division of certain assets such as pension plans or annuities.

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