Divorce in itself is not an easy process since it involves a lot of emotional and financial stress. Two individuals who have been putting together for a long time suddenly decide to part ways and divide home, property, and money and make arrangements for the kids in case kids are involved. According to a majority of the divorce attorneys involved in facilitating divorce proceedings the cost of divorces in the coming times is going to increase especially where the payment of alimony is involved.
The new tax reforms being introduced after a long time are going to have a big impact on the alimony payments since the new tax reforms are going to eliminate the tax benefits that were being provided to individuals paying alimony.
Alimony forms the basis of the settlement in a divorce especially when there is a wide gap in the earning of the spouses undergoing the divorce. Alimony is something that is involved with child support and has a deep implication on child custody and childcare.
Till now the payee was able to avail a tax benefit on the alimony he or she was paying to the spouse. Almost 600,000 Americans claimed an alimony deduction on their 2015 tax returns according to a report. However the earnings shown by people via alimony received was much less than this figure which is a major reason for the scrapping of the tax reduction being introduced by the government in the upcoming bill. The payee shows alimony as expenditure and the receiver shows the alimony as an income on their tax returns.
Many divorce lawyers till now used the tax deduction as a means to make the settlement easier for the payee since there was more money on the table that could be given to the person receiving the alimony. The new reforms are surely going to reduce the money that will be available to be paid as alimony. This is surely going to have serious implications in the form of long drawn legal battles in and outside the courtroom which are obviously going to add to the legal fees each spouse undergoing a divorce needs to pay to their divorce attorney.
Reduced money will also have far reaching effects on the money spent on child care. Since quite a lot of money will be going towards covering the taxes which will have less left for childcare. Division of property is another major factor that is covered under divorce proceedings which of course will become a bit tough since both the partners will be aiming to get the bigger share.
The changes in the tax structure will have a major effect on the low income group. The difference of $200 to $300 means a big difference for people with limited sources of income. It can mean a car payment or food for the whole month. There will surely be a big change in the lifestyle and quality of life among people from the low and middle income groups.
The impact on the wealthy segment is not going to be much. However an interesting trend to be watched out after these tax reforms go underway will be the prenuptial and postnuptial agreements that typically contained a mention of the alimony. Until this point the agreements would be drafted keeping in mind that tax deductions on the alimony amount would take place.
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