When anyone ends a marriage in Georgia, there are both figurative and literal costs involved. One especially noticeable change with the actual expenses related to untying the knot is with alimony and child support. This is because of a provision in the Tax Cuts and Jobs Act (TCJA) that will apply starting in 2019. In addition to lowering federal tax rates, the law also eliminates exemptions and many deductions, including those that previously applied to alimony and child support providers and recipients.
With any divorce that involves child support, the TCJA eliminates the value of the personal and dependent exemptions. Standard deductions for single, head of household (HOA), and married filing jointly filers have also increased. A sharp increase in HOA deductions could mean significant savings for the parent who gets to use this filing status, which could be a point of contention during divorce negotiations. The HOA parent will also be able to claim the expanded Child Tax Credit. Previously, parents were able to alternate back and forth when claiming children as exemptions. It’s not clear if exemptions will still be tradeable under the TCJA.
In alimony agreements signed on January 1st of 2019 and afterword, payors will no longer be able to deduct such payments from their taxable income, nor will alimony be considered taxable income for the recipient. Being able to deduct alimony payments typically benefited the higher income earner, who is usually the paying spouse, by providing an extra source of cash flow. Under the TCJA, however, alimony will be considered a simple property transfer with no tax consequences.
Because of the ways the TCJA could affect divorce, it can be even more beneficial for someone ending a legal union to work with an attorney when negotiating a divorce settlement. A lawyer may also be able to make agreements that will go into effect in 2019 and beyond more flexible to account for the fact that the TCJA sunsets in 2025, meaning old rules would apply again in 2026. The only exception is with alimony, which will remain non-deductible indefinitely.