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With Tax Reform Under the Tree, here’s how Divorce and Individual Deductions will be Effected

December 21, 2017

With the House passing the modified version of the Tax Bill on Tuesday afternoon, it’s looking like American families will be finding tax reform under their trees along with its usual gifts and sweets which are synonymous with the season.

The current Tax Bill passed in the House along party lines with a 227-203 vote. On Wednesday afternoon the Bill was passed through the Senate with some modifications and will likely be signed into law by President Trump by Christmas Day. Given that such a large percentage of families are affected by divorce or separation, the question then becomes how the revised Tax Bill will ultimately affect your current situation. 

A Push to Finalize Divorce or Separation to Avoid Tax Consequences 

Relating to the above-the-line deduction for alimony, the Bill as written will apply to any divorce or separation instrument executed or modified after December 31, 2018. Therefore, any agreement which is entered into during 2018 may be insulated from the effect of this tax bill. As a result, over the next twelve months, there will be a large push for attorneys and individuals to finalize divorce or separation agreements to avoid the tax consequences of the current tax bill. 

However, there is the secondary provision for post-2018 modifications of agreements which can result in the tax bill applying to pre-2019 divorce or separation agreements. It is important to note that for situations where a post-2018 modification becomes necessary, the tax bill will only affect a modification which specifically opts into the new tax regime. The result being that most agreements entered into over the next year will likely have a provision indicating whether or not a subsequent modification will be controlled by the new tax bill.

Removal of Individual Deductions

The new tax bill will also have one other effect on families: individual deductions have been removed by the current tax bill. This change will affect all families, regardless of whether the family has been affected by divorce. In all cases, while there is a larger individual and joint deduction, there is no longer the option to take a deduction for oneself, a spouse, and any dependents. For those with larger families, this could result in a significant change in their deductions.

“A child cannot be claimed by both parents in the same tax year on individual tax filings.”

Where parents of a child file separately, only one parent gets to claim a child as a dependent on their taxes. A child cannot be claimed by both parents in the same tax year on individual tax filings. As a result, in typical divorce and child custody agreements, there is a provision delineating which years each parent is entitled to claim the child as a dependent on their taxes. As a result of this new tax scheme, such provisions will be rendered meaningless.

If you wish to contact an attorney to discuss the implications of the tax law on your current situation, call HoganWillig Attorneys at Law or email us at