New tax law creates changes for alimony, retirement savings

New tax law creates changes for alimony, retirement savings

On Behalf of | Aug 23, 2018 | Alimony And Child Support, Firm News |

The Tax Cuts and Jobs Act that was passed last year by Congress created many changes for individuals and businesses alike in Wyoming and all across the nation. In particular, those couples whose divorces will be finalized in 2019 will witness a major shift in how alimony will be taxed. While this change will be apparent when each subsequent tax season rolls around, it will also have farther-reaching implications into future retirement planning.

Most couples planning to divorce are aware that the party paying alimony can no longer deduct that amount from their taxable income. However, the person receiving alimony will not be responsible for paying taxes on it. This change becomes effective for any divorce agreement that occurs beginning Jan. 1, 2019. What many couples have not yet considered is how retirement accounts may be affected by the tax changes.

Currently, in order to get a deduction for alimony payments, the payments must be made in cash. However, for divorces finalized in 2019, funds from a person’s retirement account may be transferred to make the payment. This, in effect, creates a similar situation to the way alimony is presently handled. The payer of the alimony may use funds from an IRA account; however, he or she will not pay taxes on it after the withdrawal, since it will be given to an ex-spouse. On the other hand, the recipient will be required to pay taxes on the amount, as well as penalties, if under the age of 59½.

Receiving alimony payments from an IRA account can also have an impact on the way someone can save for future retirement funds. When a couple decides to end a marriage, it is imperative to seek professional guidance when negotiating alimony and resolving other issues. A Wyoming divorce attorney will work on behalf of clients to achieve the best possible outcome in the proceedings.