People in Connecticut might be aware that at the end of 2017, Congress passed the Tax Cuts and Jobs Act. The changes this act makes to exemptions for children and to alimony payments means that divorce may end up being more expensive.
Under the new law, single parents who have a dependent in their home more than half the time and who pay more than half of the household expenses can claim a significant head of household deduction. The IRS has yet to issue guidance on whether the child tax credit, which the parent who takes the head of household deduction can also claim, will be tradeable. Parents can write a divorce agreement that includes the provision that this can be traded if allowed.
For agreements finalized starting in 2019, alimony will not be tax-deductible for the payer or tax-payable for the person who receives it. This is a change from the previous decades, and it is anticipated that the receiver will end up with less money overall. Most of the provisions of the act will sunset in 2025, but this is not the case for the alimony change. However, divorce agreements should still take into account the possibility of a change in tax laws.
People who are considering a divorce might want to talk to an attorney about what the process entails and what the financial outcome could be. There are a number of other financial considerations to take into account. For example, dividing some assets could be complicated. If the couple owns a home, they may need to decide between one person buying out the other and selling the home. If the sale is unlikely to be immediate, they will need to decide who will pay expenses in the meantime. There are also rules around dividing other assets such as pension plans and 401(k)s.