For splitting spouses who did not complete the divorce process in 2018, they must now settle their separations according to the newest tax laws. The Tax Cuts and Jobs Act withdrew the tax deduction that people who paid spousal support had been allowed to take. With alimony no longer deductible as of 2019, some Illinois residents negotiating their high-asset divorces are looking for alternative methods to reconcile financial disparities within the division of marital property.
Property division generally does not impose taxes. Splitting spouses might choose to replace alimony payments with one or more cash transfers outlined within the property division agreement. For example, two spouses with a marital estate valued at $1 million might decide that one former spouse pays the other $500,000 outright or in multiple payments over a set amount of time.
Cashing out a spouse instead of committing to ongoing support payments could prevent lingering connections and resentment between the former partners. Some disadvantages could arise, however, if the cash does not arrive on time. In addition, a bankruptcy might enable the ex to discharge the obligation at some point. A person pursuing unpaid portions of a divorce settlement has the ability to seek a wage garnishment, but garnishments would be limited to 25 percent of pay. By comparison, a wage garnishment to collect unpaid alimony could seize up to 50 percent of pay.
Legal advice could prepare a person for some important financial decisions during a divorce. An attorney’s assessment of the client’s financial situation might reveal strategies for dividing property fairly. Legal counsel could aid the process by buffering the client from hostile discussions and proposing compromises that might limit the need for prolonged litigation.