When planning to divorce, couples don’t often realize that timing can have an impact on the financial outcome of the proceedings. Changes to maintenance (formerly known as alimony), 529 college savings plans and tax filing statuses are all potential influencers when deciding when to end a marriage.
Upcoming Changes:
Spousal Maintenance
Current law states maintenance is tax-deductible by spouses paying and receiving the payments. Under the new bill, the paying spouse will no longer be able to deduct these payments from their taxes, while the recipient no longer needs to claim the support as taxable income. However, the rule is not retroactive, which means cases settled in 2018 are not subject to this new change.
College Savings Plans
Couples who have 529 college savings plans for their children will need to take additional steps in planning for future education. Beginning in 2019, these funds can also be used for private school (K-12), as opposed to just college education. Divorcing couples will have additional decisions to make regarding how saved funds are distributed, in addition to whether or not it will be split or held in one of the parties’ names after the divorce is finalized.
Separate Tax filing
When a couple is separated or going through a divorce, they must coordinate the filing of their taxes. However, as long as the divorce is effective on or prior to Dec. 31, both parties are able to file their taxes separately for that calendar year. To many, it is a relief not to have to continue to be tied to their partner for tax purposes, and many take advantage of the rule to get their divorce complete before the year runs out.
Couples should take all of these things into consideration when weighing whether or not it’s beneficial to have a divorce finalized before or after the New Year. While every family’s situation is different, all couples considering a divorce should familiarize themselves with the upcoming changes.