Three New Tax Rules Will Affect Oklahoma Couples Divorcing in 2019
When certain sections within the Tax Cuts and Jobs Act take effect January 1, 2019; three tax regulations will have a significant impact on couples involved in or considering divorce in the new year. The rules affect all Oklahoma divorce cases and settlement agreements that are not finalized by December 31, 2018.
The first tax rule eliminates the alimony tax deduction that payers have taken advantage of for years; to reduce their tax liability. Under the current law, a person paying spousal support in cash can still take a cash deduction; while the recipient will pay taxes on the income. Parties to a divorce that is finalized by the end of 2018, through court proceedings or by agreement, can continue to deduct alimony payments. However, new divorce cases and those that are pending in 2019 cannot.
While this tax law may be disappointing to some; a second new regulation will take effect to offset the effects. Specifically, starting in January, those paying alimony can transfer the funds directly through qualifying retirement accounts. By structuring spousal supports payments in such a way, the payor will not incur taxes that he or she would normally have to pay for withdrawing funds from a retirement account.
George H. Brown, an attorney that heads up the divorce practice group at Brown & Gould in Oklahoma City, OK, offered some suggestions on these developments. “Many couples think they need to be in a hurry to finalize divorce proceedings or enter a settlement agreement on alimony before December 31, 2018. However, even though the alimony tax deduction is going away, the ability to pay spousal support through a retirement account has its benefits.”
Mr. Brown added that parties should not rush through the divorce process just to get the alimony tax deduction. “It’s more important to finalize things on a timeline that makes sense, and consult with a divorce attorney who will protect your rights.”
The third new tax law that affects divorces starting in 2019; pertains to business valuation for purposes of asset division in a divorce. The application of the new rule could increase the value of designated “pass-through” entities, which require the individual owner to pay taxes on the earnings instead of the company. According to Mr. Brown, “The end result is that the spousal ownership interest is likely worth more money which means that more assets are at stake when it comes to the division of marital property.”
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