Experienced Tennessee Divorce Lawyers Are Ready to Help You Benefit from the New Tax Law Changes

The recent tax overhaul law directly impacts most aspects of family law cases. A full understanding of each tax provision is necessary to effectively prioritize and litigate your equitable distribution, alimony, child support, and other family legal issues. Skilled lawyers can help you save money and increase your assets. Most of the tax law’s provisions begin in 2018. (Some start in 2019.) It’s important to plan your divorce now to take full advantage of the changes.

How alimony, property division, and child-care credits affect Tennessee spouses and parents

Knoxville divorce lawyers can help you navigate the law’s complexities, including the following divorce matters:

• This is the requirement that a spouse make temporary, rehabilitative, or long-term payments to a spouse whose earning potential is limited.
  • The prior law. The spouse who paid alimony could deduct the payments on their federal tax returns. The spouse who received alimony was required to report the alimony receipt as income on their federal forms.
  • The new law. Couples who are divorced after December 31, 2018, must follow the new law which requires that the payor spouse cannot deduct the alimony payment. Under the new law, the spouse receiving alimony does not report the payment as federal income.
  • How the change affects alimony in Tennessee. Most alimony recipients are in a lower tax bracket than the spouse who is making the payment. The net result prior to the new law was to encourage alimony payments because the family unit (both spouses) would pay lower taxes. The new law reverses that benefit and increases the net tax payments. More money (less taxes) made it easier to settle divorce cases. The new law means less money and thus a greater likelihood alimony will be contested. The new law also affects the ability to draft prenuptial agreements.

The December 31, 2018 effective date means couples contemplating divorce where alimony is likely should consider filing for divorce now instead of waiting.

• Equitable division of property. In Tennessee, property is divided based on fairness principles and not how the property is titled and not on a 50/50 basis.
  • The prior law. Many homeowners itemize their deductions to reduce their federal taxes. A major itemization is the homeowner interest deduction. Prior to the new law, there was a $1,000,000 cap – interest on debt under one million dollars could be deducted. Interest over a million dollars could not be deducted.
  • The new law. The cap is reduced to $750,000 in debt.
  • How the change affects equitable division of property in Tennessee. When couples divorce, the debts are equitably divided in addition to the assets. While the new tax law only applies to high-asset spouses, the change in the law means spouses with expensive homes will pay much more in taxes. If a spouse’s tax rate is 32% and they own a million-dollar home, the new law means $250,000 x .32 = $80,000 will have to be paid to the IRS. That’s $80,000 that previously could have been used for alimony, child support, or a more amicable property division settlement.
• Child care credits. This is a tax credit (as opposed to a tax deduction) to help working parents who pay people or businesses to care for their young children (under 12 years of age) while they are working. There are many requirements to be able to use this credit.
  • The prior law. Parents were entitled to a federal child care tax credit, if they otherwise meet the requirements, in the amount of $1,000.
  • The new law. The child tax credit is increased to $2,000. The income threshold increases to $200,000 (previously $75,000) for single parents. It’s increased to $400,000 (previously $110,000) for married couples. Up to $1,400 is refundable even if a spouse has no tax liability
  • The benefits of the new change. When spouses are divorced, the need for quality child care increases because each parent needs to work. The new tax law helps divorced parents by providing a larger credit.

There are many other parts of the new tax law a respected Tennessee divorce attorney needs to understand. These parts include:

• Different tax brackets for different incomes
• A decreased ability to deduct state and local taxes
• Replacing exemptions with a larger standard deduction
• The elimination of the Affordable Care Act mandate

Additional tax law changes also affect medical deductions, the alternative minimum tax, and estate taxes.

Our Knoxville divorce attorneys understand the new tax law and how the changes affect the amount of money available for you, your spouse, and your children. At the Law Offices of LaFevor & Slaughter, we work to minimize federal taxes, so you have a better chance of keeping a marital home or other valuable assets. To review all your divorce concerns, including the effect of the new tax law, please phone us at 865-637-6258 or fill out our contact form. There may be advantages to filing for divorce in 2018 instead of waiting until 2019.