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The impact concerning the loss of the alimony deduction

Great care is required when dividing property during a divorce. Shifts in the law often impact the way couples need to approach divorce as well.

Before 2019, couples often used the so-called alimony deduction regarding divorce planning. The payor deducted payments on their tax forms as recipients instead paid the tax. But as a recent Forbes article points out, such deductions will not be allowable for those finalizing their divorce after 2018.

This is not necessarily good news for recipients. While not paying as much for receipt of alimony payments, there is a likelihood a recipient will also receive less in alimony. Due to such an outcome, couples will require a different strategy when it comes to the division of property.

A strategic approach to alimony payments is in order

It is important to analyze the consequences of any divorce settlement when it comes to property division. Alimony payments, in particular, require planning. Almost any approach one takes can lead to tax consequences or expense for one, if not both, of the spouses.

Couples may decide to exchange assets in return for reduced alimony. For example, one could exchange assets contained in an IRA or 401(k). A small business owner may be able to take advantage of such an exchange through various methods of replenishing their retirement account.

But before pursuing such a course, one needs to understand the consequences of withdrawing funds that could result in penalizations. Penalties for early withdrawal can be substantial.

It’s important to understand that every circumstance is different. Therefore, the approaches attorneys take when it comes to property division matters have to reflect the needs and concerns of each spouse. There may be means of resolution that will ultimately be the best for both spouses.

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