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Thinking About Divorce? There’s A Financial Reason Why You Should File Today

Thinking About Divorce? There’s A Financial Reason Why You Should File Today

If you’ve been contemplating getting a divorce, consider this a sign.

I can’t speak to any of your marital issues. But I can tell you that if you’re the breadwinner in your relationship, you might face a bigger financial burden if you get divorced in 2019 or beyond.

Courtesy of President Trump’s new tax bill, after Dec. 31, 2018, high earners will lose the tax break that has allowed them to deduct alimony payments on their income tax forms. For the first time in 75 years, alimony will be just like any other non-deductible expense.

If there’s a significant disparity between your income and your spouse’s, you could wind up paying a lot more in support under these new rules. Now is the time to get those divorce papers filed if your marriage has run its course and you anticipate having to pay alimony.

Working with New York’s high-earning people, I hear my clients voice numerous concerns about the loss of this deduction. If you’re worried about how the tax bill will impact your divorce, you should speak to a lawyer right away as there is much more to consider even beyond the alimony deduction issue.

In the interim, here are answers to the three questions I hear most frequently.

How will the new tax bill impact my divorce?

Regardless of whether you benefit from the current alimony deduction, Trump’s tax overhaul could make everyone’s divorce more complicated. Divorce isn’t just the separation of a relationship—it’s also the separation of finances. Determining how those finances will be split depends to a substantial extent on each party’s income taxes.

With the new tax law, determining who gets what could get messy, at least for the first years under the new regime.

This new tax landscape could also increase your likelihood of going to court. Right now, the existing tax break incentivizes high earners to pay more in alimony, i.e. payments are deductible to the payor.

If negotiations are going south, upping your alimony payment is a good way to smooth things over and prevent a courtroom battle. If you can deduct it anyway, why not make a higher offer to keep the peace?

With the loss of this tax break, however, you’ll probably be less inclined to throw money at the problem. If your spouse doesn’t get the support they want and you’re not willing to pay more, it could lead to a stalemate and drag out negotiations.

Couples that have already divorced may be affected as well. If you modify your alimony agreement after 2018, you may lose the deduction you enjoy now. If you’re not happy with your current arrangement (or if you’re concerned your ex may try to modify your agreement in the future), consult with an attorney and determine if it makes sense to reopen that financial can of worms before the new rule goes into effect.

I want to take advantage of this tax break while I can. What should I do next?

You should get moving, especially if you expect there to be some back-and-forth between you and your spouse. To ensure that your alimony payments will be tax deductible, you have to finalize a divorce or separation agreement by Dec. 31, 2018. That’s finalize, not file—which means you need to file a petition, negotiate an agreement and possibly go to trial, all in the next few months. If you have kids, that adds an additional layer of complexity.

If you’re ready to take action, find a good divorce lawyer who is familiar with high-net-worth marriages and can ensure that your divorce goes as smoothly and quickly as possible. An experienced attorney can anticipate and address any road blocks that might prevent you from finalizing your separation by the end of the year.

My marriage is fine now, but what if I want a divorce in the future?

Not all hope is lost. You won’t be able to deduct alimony from your income taxes, but during your divorce, you may have more leverage power to negotiate lower payments. Understanding that you’ll no longer have the benefit of a tax break, courts may sympathize with you and cap the amount of alimony you have to pay.

It might not make your spouse happy, but it will reduce any undue burden on you.

You may also be able to negotiate other forms of support that are taxed at a lower rate (or not taxed at all). Instead of ongoing alimony payments, your spouse may take real estate or a lump sum. If your spouse can support themselves well enough for now, they may be willing to accept payments from your tax-deferred retirement account in the future.

If your partner is flexible and your lawyer is a skilled negotiator, you may find a way to reduce or eliminate your alimony payment.

Whether you make the Dec. 31 deadline or not, an experienced divorce attorney can help reduce your tax burden and negotiate the best possible outcome for you. There’s no shame, however, in making a move sooner rather than later to protect your finances.


Related topics: High Net Worth Divorce (54)

Dror Bikel

Dror Bikel is a Manhattan-based divorce and child custody lawyer. He founded and leads Bikel and Schanfield, New York’s best-known firm for high-conflict matrimonial disputes.

As founding partner of the Manhattan-based firm, Bikel & Schanfield, LLP, Dror Bikel’s 20+ years of trial and litigation experience offers invaluable insight in facilitating settlements, mediating disputes and obtaining superior results for his clients. A recipient of the New York Super Lawyers Award, Mr. Bikel is voted among the Top 5% New York State Family Law Attorneys.

To connect with Dror: 212.682.6222 or [hidden email] or online
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To learn more about Dror's book The 1% Divorce: When Titans

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