Published April 11, 2019 by Rebecca Wade
Tax time is upon us. And for individuals dealing with divorce, the recent tax reform bill could be the difference between getting a big tax refund or paying thousands more. Experienced family law attorney Rebecca Wade sheds light on the tax law changes and how they impact family law.
“Whenever people get divorced there are a lot of tax consequences to consider. They need to think about spousal support, paying or receiving alimony, and dependency exemptions,” explains Wade.
One item generally argued over and worked out in child support cases is which parent gets to claim the children as dependents. Under the tax reform bill, Congress eliminated the child dependency exemption. “At first blush, it looks like dependency exemptions don’t matter anymore since Congress eliminated them,” says Wade. “But that’s not the case. When you go to do your taxes, you’ll notice there is still a line for dependents. The reason that line still exists is because even though there are no longer personal dependency exemptions, there are a lot of other tax benefits that are tied to claiming a dependent.”
“For example, consider the child tax credit. Most people believe that you can take the child care tax credit (which applies to child care expenses required for a parent to work) if you claim the child as a dependent. However, under IRS regulations, the child tax credit is not tied to dependency. Rather, the person who cares for the child for more than six months of the year gets to claim the credit, the value of which has increased under the new law,” explains Wade.
The other really significant family law change is alimony. Previously, alimony was tax deductible for the payer and taxable for the person receiving alimony. However, under the current tax reform bill, alimony is tax-free for the recipient, and it is no longer tax deductible for the payor.
Wade says, “It’s also important to note that Congress did not make that retroactive. So if you have an old spousal support order that was issued under the old law, the alimony payment will be tax deductible to the payer and taxable to the payee. However, if you had to go to court for some reason and modify the order, the alimony would switch to tax-free money for the person receiving it and the person paying it won’t get to take a deduction anymore.”
Consult an Experienced Attorney
“If you’re going through a divorce or a child support matter, it’s important that your attorney understands the issues you’re going to face and how your taxes are going to be impacted,” Wade says. “Because there’s a difference between getting a big refund in April and owing money. If you don’t have an attorney that can see down the line how these tax changes are going to affect you, it could wind up costing you thousands of dollars.”