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Why should you finalize your divorce in 2018?

2018 is more than half way over. For many people in Virginia, the first half of the year was a blur and they wonder where the time went. However, for those in unhappy marriages, these months may have seemed to drag on. Sometimes, if a person’s marriage just cannot be saved, divorce is in their future. However, there are some important tax reasons why a person might want to consider divorcing before the year ends.

The U.S. tax laws underwent dramatic changes in 2017. Some of these changes affect spousal maintenance. Currently, the person who pays maintenance can deduct such payments from their income taxes, while the person who receives maintenance must report it as income on their income taxes. However, starting in 2019, the person who pays maintenance cannot deduct these payments from their income taxes, and the person who receives maintenance no longer needs to count it as income when it comes to their income taxes. If a person wishes to be grandfathered under the current maintenance tax laws, they will need to divorce before 2019.

One issue that many divorcing couples face is who will have primary custody of their child. The new tax laws did away with the personal child exemption for the tax years 2018 through 2025. This means the custodial parent will no longer enjoy the child exemptions they would have had before the laws changed. However, the custodial parent might still qualify for the more generous child tax credits under the new tax laws.

Many divorcing couples are homeowners, and thus will need to decide whether to keep or sell the marital home. Under the new law, the amount of property taxes that can be deducted have gone down, and the amount of interest on a home loan that can be deducted also went down. In addition, if a spouse keeps the house after a divorce, and sells it while they are single, if they gain over $250,000 this could affect their taxes. Couples will need to keep these points in mind when dividing assets.

Given the new tax laws, couples will need to determine whether it is in their interest to finalize their divorce before the year’s end. It is a personal decision, but one that requires careful thought as it can affect a person’s finances for years to come.

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