Michigan couples going through a marriage dissolution in 2018 may want to ensure that they get a divorce decree before the end of the year. This is particularly important if their case happens to involve a lot of assets. The tax reform package approved by the Trump administration has a few line items that will impact the financial outcomes of divorce cases across the United States.
The so-called "divorce subsidy" of spousal support payments will go away starting January 1, 2019. This means that individuals who are ordered to pay alimony will no longer be allowed to deduct taxes from these payments. As for individuals who receive alimony, they may no longer be able to deposit tax-free funds in their individual retirement accounts if they are not working. As long as an agreement to pay alimony is finalized before New Year's Eve, this new tax disadvantage can be avoided.
Couples should also keep in mind that dividing marital property in terms of real estate assets will get more complicated. This is because mortgage loan borrowers will not be able to deduct as much interest from their taxes. In some cases, selling real estate acquired during the marriage will make greater financial sense for a spouse going through a divorce.
If spousal support payments or real estate distribution are provisions of an existing premarital agreement, they should be reviewed by family law attorney prior to finalizing a divorce in 2018. It is important to remember that family court judges will invalidate prenuptial agreements if the provisions contained therein do not conform to existing law, and that includes the U.S. Tax Code.