Divorcing couples in New Jersey may well know that the changes rolled out in the new Tax Cuts and Jobs Act impact a variety of things that may come into play during their divorce negotiations, including the potential payment and receipt of spousal support. At Weinberg & Cooper, LLC, we help our clients understand these changes and how to navigate their unique situations to find a final agreement that benefits them.
As explained by Forbes, spousal support payments were previously reported as taxable income by the receiving spouse. The paying spouse would, in turn, deduct the amount from their tax returns. Now, the paying spouse must also pay income tax on the funds. As such, standard alimony payments would result in more income tax being paid between the two homes. Savvy couples may avoid this by evaluating other options.
Instead of making alimony payments, a couple might establish a charitable remainder trust to be funded by the higher-earning spouse with the other spouse receiving payments as the beneficiary. Taxes are assessed on those payments at a lower tax rate, benefiting both parties. Eventually, trust assets flow to a designated charity. Couples might also opt to transfer retirement or other investment assets to the spouse with a lower tax rate.
If you would like to learn more about how you and your spouse may evaluate your property division and spousal support options in light of the new tax law and your complete asset portfolio, please feel free to visit the alimony, taxes and property division agreements page of our New Jersey family law and divorce website.