Tax changes create challenges, opportunities in divorces

On behalf of Stange Law Firm, PC posted in High Net Worth Divorce on Saturday, January 12, 2019.

People in Missouri who are starting 2019 facing an upcoming divorce will have no shortage of issues to contend with. Among these issues may well be how to navigate the new tax laws and the impact these laws are no doubt set to have on divorce settlements for countless couples.

As explained by CNBC, alimony payments have historically been treated as taxable earned income for the spouse who received the money. This has changed now and instead, it will be the spouse who makes alimony payments who is required to also pay income tax on the funds. This might seem like a benefit to the receiving spouse but, it may have a potential downside for that person.

Some retirement fund investments may only be made with taxable earned income and since spousal support payments would not fall into this category, a receiving spouse’s ability to invest the money into some retirement accounts may be limited.

According to Investment News, couples might find that creative solutions are available to them in the wake of the new tax law. One example might involve the one-time transfer of retirement funds to a spouse in a lower tax bracket in lieu of monthly alimony payments. This eliminates the account owner’s future tax liability on the money and reduces the overall taxes paid on the funds because the recipient is taxed at a lower rate. The changes that have been made with the new tax code may require more diligence during the divorce negotiation process to fully understand the ramifications of potential decisions.

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