It’s a Wild Year for Divorce in New Jersey, Thanks to Trump Tax

For many divorcing spouses, the rush is on to officially say “I don’t” in 2018. Why? Because couples are hurrying to get their divorces finalized before the year end to avoid ending up worse off.

This unprecedented rush by financially savvy separating couples is motivated by the new federal tax overhaul that wipes out a long-standing alimony tax deduction. When the new law goes into effect, exes who pay alimony stand to owe the IRS thousands more, and recipients could receive much less.

Divorces and alimony orders that are signed and sealed by the end of this year however, will be exempt from the new rule. As a result, 2018 is rapidly becoming known as the “year of divorce.”

A 75-year-old divorce tax deduction disappears

At tax time, it’s been the law for decades that spouses who pay alimony can automatically deduct these alimony amounts from their income. If you make $200K per year and pay $30K in alimony, for example, that amount is immediately shaved off your taxable income, possibly saving you thousands on your tax bill.

The new federal “Trump tax law” will change all that. Beginning in 2019, if your divorce settlement is finalized in 2019 or later, you will no longer be able to deduct alimony or spousal support payments from your taxes. In other words, when you pay alimony under the new tax rules, you are paying your former spouse — and paying Uncle Sam more in taxable income on top of that.

Spurring many to divorce this year is the legal loophole that finalizing your divorce in 2018 (or establishing an alimony order in 2018) grandfathers you in under the old system. For those who make the divorce deadline of December 31, 2018, spousal support and alimony payments will remain tax deductible for the entire time alimony is required to be paid.

On the other side of this coin, the new rules also impact spouses who receive alimony. Under the current system, recipient spouses are required to claim any alimony they receive as taxable income. But for those who get divorced in 2019 or later and receive alimony, this money will essentially become tax-free.

The clock is ticking

When divorce is inevitable, couples may think that going through the court system is their only option. But pursuing a litigated divorce in court is a path that often only slows down the divorce process, sometimes dragging it out for years as a result of delayed court dates and procedures that often increase tensions rather than lower them.

So what can divorcing spouses do? When time is of the essence, as it is this year for spouses trying to beat the end of year deadline for the sake of their taxes, pursuing an out of court method for divorce may be critical for reaching a successful resolution in time. In particular, spouses should explore low conflict methods of getting a divorce that allow couples to speedily work through their issues — including alimony — with the guidance of a neutral third party. In New Jersey, this could include uncontested divorce, collaborative divorce, divorce mediation, and arbitration. Using some of these methods, a divorce could even be achieved in weeks, with the right attorney, rather than months.

Divorce in 2018: What you need to know

• Divorce must be finalized before December 31st to be grandfathered in under the old tax system.
• Couples need to start the process now, to stand a chance to get in before the deadline.
• Choosing the right divorce attorney is essential if you want to save time & money.
• A low-conflict divorce strategy is key to achieving a final judgment before 2019.
• There are several options for divorcing spouses who want to avoid the divorce tax.
• Couples need to be settlement minded.
• It is possible to divorce in days in NJ rather than months (or even years)… with the right attorney.

What a final divorce settlement looks like is something that is generally wide open for negotiation. You may be in a hurry to divorce, but you cannot afford to make hasty decisions about your final terms. If you are certain that a divorce is in your future, do what it takes to create a clear strategy for a fair settlement.

Time is ticking for the alimony tax deadline, but if you make smart decisions, there’s still time to beat the clock.