In North Carolina and across the United States, couples are rushing to finalize their divorces by December 31, 2018. The Tax Cuts and Jobs Act of 2017 goes into effect on January 1, 2019, and affects how alimony is taxed for both the paying spouse and the recipient. Divorcing couples should also be aware of how their divorce affects their Social Security benefits because, when combined with the new tax laws, you may get more benefit finalizing your divorce before or after December 31, 2018. A good divorce attorney from Jerkins Family Law understands the new regulations and can find the option that benefits you most.
Alimony in North Carolina
The Tax Cuts and Jobs Act of 2017 changes how alimony is taxed for both the recipient and the paying spouse in any divorce cases finalized after January 1, 2019.
For the paying spouse, alimony will no longer be tax-deductible. For some, this will affect which tax bracket they fall into. For example, if the paying spouse currently earns $100,000 per year and pays $25,000 per year in alimony, his taxable income is $75,000, which puts him in a lower tax bracket. After January 1, 2019, in the same situation, the paying spouse loses the $25,000 deduction and is taxed on his $100,000 income.
The recipient spouse will no longer pay tax on alimony payments. However, the tax-free alimony is no longer considered "compensation" and cannot be used to fund IRA accounts. If funding an IRA is important to the recipient, the law allows the paying spouse to contribute directly to an IRA for the recipient spouse. The recipient spouse receives this contribution tax-free, and the paying spouse does not pay taxes on the distribution. The recipient spouse would pay taxes on the withdrawals and would pay the ten percent early retirement penalty if he or she is younger than 59 and a half years of age.
The Tax Cuts and Jobs Act of 2017 will change how family law attorneys structure divorce settlements after January 1, 2019, to meet the needs of both parties.
Social Security in North Carolina
Social Security may be an important source of income for some divorcing couples, and how they structure their divorce can affect the amount of those payments to each spouse.
If your marriage lasted more than ten years, you may be eligible for spousal Social Security benefits, including widow or widower benefits. If the marriage has lasted almost ten years, you may consider waiting to file for divorce until after that ten-year mark to get those benefits. However, with the Tax Cuts and Jobs Act of 2017 and the changes to taxes on alimony, each party should consult with his or her attorney and/or financial advisor to determine the strongest benefit.
Hiring a Knowledgeable Divorce Lawyer in Raleigh, North Carolina
If you are considering divorce in Raleigh, North Carolina, contact Jerkins Family Law today. Finances are a significant point in any divorce case and should not be taken lightly. Our knowledgeable attorneys understand how the Tax Cuts and Jobs Act of 2017 will affect your divorce and can negotiate the strongest settlement on your behalf. Contact us today.