Tax Complication Affects Divorces

Posted by Victor Dela Casa

Divorce - the winter of discontent

Divorce and alimony complications under the new tax laws

A friend once told me that when the season changes to fall, couples separate, and not too long after, in January, couples end up in court. The end of the holidays also spells the end of many marriages. The winter months do bring discontent and a spouse' cold shoulder.

Due to tax considerations, the start of the year has become a popular time for filing divorce. Thanks to the new tax laws, things just got a bit more complicated especially for wealthier couples whose bracket is being hit hard by increased taxes. This regime is forcing divorce lawyers and accountants to re-think several aspects of a high asset divorce agreement such as alimony, stocks and pensions.

Alimony is an area of concern for many. High-earners are bracketed at $400,000 gross income for single filers with a rate of 39.6%. This means that alimony may put a supported spouse over the threshold forcing them to pay more taxes thus putting a spouse who is receiving alimony in a difficult spot.

With a need to lower taxable incomes, some spouses are asking the courts for an agreement modification to change the existing spousal support package by decreasing the alimony and finding alternatives that doesn’t involve paying too many taxes. Unlike child support, alimony is deductible by the payer and is reported by the payee as income. One such alternative involve a more service focused packages such as real estate upkeep which is taxed less than income.

Investment portfolios are also being reconsidered. With taxable income on dividends and investments set at $200,000 of adjusted gross income and a new 3.8 percent Medicare surtax, experts advise against getting the entire share and pay more taxes. Instead, they recommend opting for another asset that generates income but also generates a tax loss like a rental property. Depending on how taxes will be paid, many are settling to split or share the portfolio.

Divorce is already a tricky matter. The new tax laws are proving to complicate the process even more with convoluted and increased taxes designed for the wealthy. With the help of knowledgeable legal professionals, divorcing couples can agree on an amicable and equitable sharing of assets and liabilities.

About The Author

Victor Dela Casa is a Filipino-Canadian who spent over a decade working as a business professional in Canada. Worked in IT, finance, marketing, international trade, public service, project management and the maritime industry. Degree in Economics from the University of the Philippines and Honours Diploma from Eastern College. Currently based in the Philippines and working as a professional writer for a multi-national business processes firm.