The financial components of divorce may look a little different in Georgia starting in 2019. The alimony deduction is disappearing with the advent of a provision in the new tax law which will then be in effect. There is another option that may provide some tax benefits if the circumstances are right.
IRA accounts could figure in divorce settlements and yield a tax benefit. If the partner receiving alimony is either older than 59 and 6 months or does not need immediate access to the funds, an IRA can be a good settlement option. The partner paying alimony is almost always in a higher tax bracket than the recipient. The IRA is not taxable until funds are withdrawn, and in this instance the recipient will be paying at a lower rate and will realize a larger benefit.
If the receiving partner is younger than 59 and 6 months and needs immediate access to the cash, he or she may have to pay an early withdrawal penalty. This would lessen the value of the benefit received. The benefit to the person giving the IRA as part of an alimony settlement may still realize a tax benefit. He or she is giving funds that would have been subject to taxes at the higher rate so that person is in effect getting a tax deduction.
A person contemplating divorce in Georgia could benefit from seeking the counsel of a knowledgeable family law attorney. This could be particularly beneficial where questions of the new tax law and alimony are concerned. An experienced family law attorney may be able to advise a client of the different avenues available regarding financial settlements under the new tax law.
