24 Frank Lloyd Wright Drive, Suite D2000
Ann Arbor, Michigan 48105
While we’re not tax professionals, we’re paying attention to some significant tax changes that are in effect now and are also effective as of January 2019. These changes will have quite an effect on how settlements are negotiated in divorce, custody and support cases.
For divorces settled and finalized after December 31, 2018, all spousal support and alimony payments are non-taxable to the spouse receiving support and non-tax deductible to the spouse paying support. This is a significant change from the prior law, where spousal support and alimony was both taxable to the receiving spouse and tax-deductible to the paying spouse, providing it met the necessary criteria. This will ultimately have an effect on how spousal support is negotiated as it will likely result in less money being available for spousal support due to the inability to deduct the payments on tax returns.
Beginning with the 2018 tax year, the federal personal exemptions for dependents have been eliminated. However, Michigan exemptions are still in place. Interestingly, while the exemptions have been eliminated, there are child tax credits and a family tax credit that are now available. It’s important to keep the child tax credits in mind when negotiating tax issues in a divorce, custody and support case.
The personal standard deductions for taxpayers have been increased significantly, which will affect the types of personal deductions that will be available. This is something to consider as you negotiate these deductions in a divorce case, particularly as it relates to mortgage interest, property taxes, and charitable contributions.
It will be important to consider all these changes as you negotiate settlements in divorce cases, custody cases, spousal support and even child support cases. If you need more detailed tax advice, please consult a tax professional.
We educate and advise our clients to carefully guide them through the trying circumstances and difficult decisions of their particular case.
We recognize that cases involving families are of the utmost importance and require immediate attention. Please call our divorce attorney in Ann Arbor, Wendy Alton at 734-665-4441 or contact us to schedule an initial consultation.