The new year will usher in a new era for alimony tax rules that could affect Ohio residents. The old alimony tax rules that have been in place for over seven decades will go away. This means that alimony payments that were tax-deductible will no longer be so. When a person receives an alimony payment, the money will no longer be considered taxable income.
These changes have led many to strive to get their divorces and alimony agreements finalized before the Dec. 31 deadline. However, since the alimony agreement has to be in the final settlement or court order, fast-tracking a divorce can be challenging. Temporary agreements will not suffice.
Contrary to what some may think, these changes won't necessarily be negative to all individuals contemplating divorce. They do offer new opportunities for financial planning in other areas prior to a divorce.
For example, the child tax credit for 2019 has been raised to $2,000 for each qualifying child. This is an increase from the $1,000 under the previous rules. However, individuals who make more than $200,000 and married couples who make more than $400,000 will not qualify for this credit. To put things in perspective, a divorced individual who makes $100,000 and has three children under the age of 17 will get $6,000 of tax credits.
Instead of using traditional alimony, some divorcing couples may want to look into alternative payment options. An example may be payments that cover property division. In most cases, division of property payments are nontaxable. The downside is that if the spouse doing the payment files for bankruptcy, the payments may disappear. Alimony, on the other hand, is not discharged in bankruptcy.
Family law attorneys work with clients who are going through the divorce process. A lawyer may provide their client advice that relates to financial issues, including the dividing of assets and property.