The end of the year can bring a great deal of change for many families. Some changes are positive, but this can also be a time of year where people decide to divorce. People here in New Jersey may have questions about how divorce will affect their finances due to some new tax laws that will take effect in 2019. Alimony payments will be treated a bit differently, and it is important for divorcing spouses to be aware of these developments.
Alimony payments used to be tax deductible for the person who was making the payments and considered taxable income for the person who was receiving the payments. The new laws, under the Tax Cuts and Jobs Act, that will be effective on Jan. 1, 2019, offers no tax benefit for the payment of alimony. Many people attempted to finalize their divorce before the end of this year in order to avoid being subject to the new laws.
Furthermore, the new laws could also have an effect on the amount of child support a spouse may pay to the other parent. Before, the payer would often pay more in alimony than child support, due to being able to take advantage of the deduction under the old tax laws. Also, the old tax laws contained exemptions for dependents, but that will now change into a child tax credit. The credit may not be as financially beneficial to the paying spouse, since the old exemption was treated as a tax deduction. New Jersey is an equitable distribution state regarding divorce, meaning that assets -- including retirement accounts -- are to be divided fairly, though not necessarily equally.
Many of these new laws seem confusing, but those individuals who are planning to divorce may find it helpful to consult an attorney experienced with divorce proceedings and alimony payments. A professional can walk a client through the process and assist with determining the best financial options. Ideally, the client will then be able to move forward with a clear picture of his or her financial future.