Ending a marriage has financial consequences as one household splits up and each half usually lives on 50 percent of the household income. Changes with tax laws governing the deductibility of spousal support complicates this more and requires more financial and tax planning in a Louisiana divorce.
The new federal tax law eliminated the long-standing tax deduction for alimony payments in new divorces finalized after December 31, 2018. This has pushed many spouses into trying to complete divorce settlements this year so that they can continue to deduct spousal support payments.
Divorce settlements, however, address many other issues besides taxes. Effective negotiations require a spouse to determine their priorities and what is important for them after their marriage ends. Keeping the family house, for example, can be traded for lower support payments. These issues should be ranked in importance and whether they are worth fighting for. This also requires an understanding of the other spouse's priorities.
A bad deal does not justify a quick deal before New Year's Day. The financial ramifications of a long-term settlement must be considered. A settlement that is costly or depletes assets may not be worth the tax savings.
If there is no agreement on spousal support or a settlement cannot be reached in 2018, parties may be able to structure their property settlement to deal with taxes.
For instance, couples can reduce taxes if the higher income spouse keeps taxable property with a high basis such as cash and bonds or stocks in the couple's name. Tax-deferred assets such as IRAs or 401(k)s may be transferred to the lower-income spouse. However, age and timing restrictions are important, and the transfers must be executed properly. Certain use of charitable remainder trusts is one of other financial strategies can also lower taxes for higher-income couples.
Any settlement finalized this year, to keep the alimony deduction, may be modified in the future. An attorney can help develop a strategy, advice on the timing of settlement and negotiate an agreement that meets these tax and financial needs.