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Divorce costs may rise with the new year

For people in North Carolina and across the United States, upcoming changes in tax law could make divorce even more financially complicated. In December 2017, the Tax Cuts and Jobs Act was signed into law by President Donald Trump. While other aspects of the tax reform garnered a great deal of media attention, less discussion focused on the law’s effect on couples who decide to divorce.

The law eliminates the personal and dependent exemptions from previous years while increasing standard deductions. There are different standard deductions for different types of tax filers. Single people will have a $12,000 standard deduction while a Head of Household has an $18,000 standard deduction. In order to file as Head of Household, an unmarried taxpayer must have a dependent in the household over 50 percent of the time. If there is one child, only one of the two parents can qualify for the status after a divorce. In the past, exemptions were a topic in negotiations because they helped to reduce taxable income. With their elimination, eligibility for child tax credits can become more important.

In addition, the tax treatment of alimony will differ greatly for people who divorce in 2019 or later. Starting with the upcoming new year, alimony payments will no longer be tax-deductible. The change will eliminate one of the advantages to a wealthier former spouse for agreeing to generous spousal support. It should be noted that deductibility will remain for couples who divorce before the new year.

For couples who conclude a formal separation agreement before the end of 2018, they can continue to use the old tax rules. A soon-to-be ex who wants the economic benefits of the current system can work with a family law attorney to complete a separation agreement before the legal changes come into effect.

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