What Can I Do to Minimize Taxes in Divorce Now That the Alimony Deduction Is Gone?

The alimony deduction disappearing threw a huge wrench into divorce planning strategies. For years, this deduction allowed couples to save on the total tax bill. Now that these alimony payments are no longer deductible (as of 2019), most alimony payors will pay more in taxes, while alimony recipients will ultimately receive less net money. Overall, both individuals have much less to spend.

However, some divorce attorneys can suggest some strategies that may now be used to try and compensate for the loss of the alimony tax deduction. Specifically, you will want to be more strategic when it comes to the division of assets in your divorce.

IRAs & 401(k)s

For example, it may make sense for some to exchange IRAs and 401(k)s for reduced alimony payments.  This essentially allows the individual who makes more income to make those alimony payments via a retirement asset without ever paying tax on it. In this sense, that money has the same benefit of the prior alimony tax deduction. Just note that if you as the recipient are less than 59 1/2 years old, there are likely withdrawal penalties when it comes to 401(k)s and IRAs. This option might be especially appealing to individuals with retirement benefits who can otherwise replace retirement plan contributions over time.

The Investments You Take Away

You also want to be strategic when it comes to the investments that you take in a divorce settlement, especially if you and your spouse have any large gains on stocks or real estate. For example, if you have a large investment portfolio, you can benefit by transferring some of the holdings with large gains to the spouse that makes less income.

Accounting For The Future

Individuals going through a divorce may also want to speak to a divorce attorney about lump sum transfers in place of alimony payments and about the possibility of preemptively addressing any new or anticipated tax law changes in their marital settlement agreement . For example, there may be changes in the future that affect whether or not you should keep the marital home.

Contact our experienced Orlando alimony attorneys at Greater Orlando Family Law today to find out more about the right strategies for your divorce. We are eager to assist you throughout each step of your case.

Resource:

forbes.com/sites/heatherlocus/2019/07/12/minimizing-taxes-in-divorce-without-the-alimony-deduction/#5de5b7e58344