We already know that divorce can be messy and painful, but did you know that it’s about to get a lot more expensive as well? The passing of President Trump’s tax reform bill affects almost everyone in some way. On the surface, we know that the bill lowers tax rates for individuals and corporations, increases the child tax credit, doubles the standard deduction, and caps or eliminates several deductions. But delving deeper, it also has massive implications for anyone considering divorce – especially high earning CRNAs who often are breadwinners for their families. Let’s take a look at current law, the notable changes, and what they could mean for you.
Divorce and Alimony
At its most basic level, alimony, or spousal support, is the financial provision one spouse pays to another after divorce. This legal obligation is usually paid by the higher-earning spouse for a pre-determined period of time or until a certain requirement is met, such as the receiving spouse remarrying or a child no longer needing a full-time parent at home. Alimony is separate from child support and is not a guarantee in every divorce.
Current Alimony Laws
Up until now, alimony payments have been tax-deductible for the payer, and the recipient of the funds claims them as income on their tax return. If your divorce is finalized prior to December 31, 3018, you can receive a full deduction of your payments without having to itemize on your tax forms. In order for your alimony to be deductible, your divorce must follow a list of criteria set by the IRS, such as the payment being in cash (check or money order), each spouse a filing separate tax return, among others.
You may think you are safe if your divorce is already set in stone, but if your alimony terms are modified after 2018 and the new agreement includes a statement that the Tax Cuts and Jobs Act laws apply, you will lose your deduction.
Future Alimony Tax Treatment
Beginning January 1, 2019, alimony will no longer be deductible to payers, but rather, payments will be tax-free for those receiving them. If you’re a CRNA who is facing divorce and will be paying alimony, this deduction loss could mean a significantly higher tax bill. Remember, these changes are only applicable to those finalizing or modifying their divorce after December 31, 2018. But since paperwork can take months to be processed and reviewed by the court, file as soon as you can if you want to benefit from the current alimony laws.
What Does This Mean For You?
If you have started divorce proceedings and will be the spouse paying the alimony, you will want to speed up the process and get your divorce finalized before the end of the year. Depending on how sizeable your payments are, the tax law changes could make a significant difference in your financial situation for years to come, possibly affecting how long it takes for you to reach your financial goals.
The general consensus is that future alimony payers will be hustling to get their divorce in place, while payees will be stalling so they can take advantage of the tax-free income benefit. Many divorce lawyers are predicting that both sides of the table will fight harder to get what they want and that spouses may not be as generous with their alimony offers due to the loss of the tax write-off.
If you are in the midst of a divorce and have questions about your finances and the tax law implications, we invite you to reach out to us. We can help you navigate this season of life and determine how to go forward with your finances. Schedule a free 15-minute introductory phone call now to discuss your current situation and needs. You can also call our office at 855.304.3748 or email email@example.com.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNAs) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients.
Jeremy is also the author of The Wealthy CRNA and A CRNA’s Life After Anesthesia. The Wealthy CRNA features insights into becoming a financially successful CRNA and how to start planning for your financial future, and has been prior approved for up to 4 Class A CE credits by the AANA. A CRNA’s Life After Anesthesia serves as your financial roadmap for a smooth emergence into retirement. It reviews recent changes in the CRNA industry along with the new rules of retirement and the final steps of legacy planning. This book has been prior approved by the AANA for up to 2 Class A CE credits.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Private Advisor Group does not provide tax advice. You should consult a qualified tax or accounting professional.