Most parties who are thinking about divorce in Chicago know that there are significant financial implications in any divorce case. From the division of marital property to spousal support, the court will make decisions during the process of the dissolution of marriage that will have substantial economic impacts on your everyday life. One specific financial issue concerns taxes. What are the tax implications of divorce, and how will the tax overhaul change the way you approach to divorce and spousal maintenance? As an article in The Wall Street Journal explains, the new tax law will implement relatively drastic changes to spousal maintenance and taxes, but those changes will not be taking effect for divorcing couples until December 31, 2018.
We want to tell you more about the general tax implications of divorce and discuss the impact of the tax law changes.
Filing Your Income Tax Returns
One of the most obvious ways in which divorce impacts your taxes concerns how you will be filing. Rather than filing as “married filing jointly” or married filing separately,” you will not be filing a single tax return again—just as before your marriage. What are the implications of this? In short, married couples are eligible for tax breaks and deductions that single filers often are not eligible to receive. As the Internal Revenue Service (IRS) clarifies, if you are in the process of getting divorced but are not yet divorced by the end of the tax year, you may still be able to file a joint return as long as both spouses sign it.
In addition, if there are children from the marriage, only one of the parties will now be able to claim a child tax credit. If you will not be the party eligible to receive this credit, you could end up paying more in taxes. Moreover, if you used to receive a credit for your mortgage on your family home when you filed a joint income tax return, that is also a tax write-off for which you may no longer be eligible.
New Tax Implications for Spousal Maintenance Payments
Until the recent changes to the tax law were passed, the spouse making maintenance payments were eligible to deduct those from his or her income for the purposes of paying taxes. Then, the spouse receiving the maintenance payments was required to include those maintenance payments as income on his or her taxes. So, for instance, if Party #1 makes maintenance payments of $1,000 per month to Spouse #2, Spouse #1 was permitted to deduct those payments from his or her taxable income, while Spouse #2 was required to include those payments in his or her taxable income.
For this tax year—for anyone in the process of thinking about taxes after a divorce—the process described above will remain intact for this tax year. However, beginning December 31, 2018, the process will change.
Under the new tax law, the opposite will occur with regard to spousal maintenance and taxable income. Now, the spouse making the payments (Spouse #1 in the scenario above) will not be able to deduct maintenance payments from his or her taxable income. Then, the spouse receiving the payments (Spouse #2 in the scenario above) will not have to count maintenance payments received as taxable income. Why was this change made? Since higher earners—those making maintenance payments—typically are in higher income tax brackets, the IRS will receive more money in taxes.
A Chicago Divorce Lawyer Can Help
Do you have questions or concerns about the tax implications of divorce? A Chicago divorce attorney can discuss your situation with you. Contact Arami Law today to speak with an experienced advocate.