Tax Law Changes Make for Needed Change in Divorce Planning

A new federal tax may make it more expensive for wealthy tax payers to divorce. The American Taxpayer Relief Act affects all aspects of divorce, including alimony, division of stock portfolios, executive pay packages and pension plans. Divorce attorneys, along with the aid of tax professionals, must make decisions about how best to file divorce documentation going forward as a result.

Numerous Factors Affected

Various factors are affected under these new laws. Divorce attorneys must consider each aspect of the process on an individual basis to determine which steps the individual should take in order to make wise financial decisions. For example, in some cases, giving deferred compensation in a divorce settlement may be a good way to reduce a tax bill or if giving away the expensive home may be a better option.

The timing of the split also matters. Those who have waited months to split may see a reduction in taxes by filing jointly for year 2012. Alimony could raise adjusted gross income above the new $400,000 benchmark. That's the top income level for those filing single.

Additional factors that must be considered include investment portfolios. A Medicare surtax on capital gains and dividends, and other types of investment income, could be a factor. An adviser may encourage the individual to take rental property that generates a tax loss over other assets that will generate more taxes.

In short, the new tax laws change the way divorce attorneys must structure divorce filings. Along with a divorce attorney whom he trusts, someone in the midst of a split might want to rely on a tax professional as another part of the team that will get him to the post-divorce security he is looking for, especially because of the complexity with new tax laws.

Our Pennsylvania family lawyers have experience in tax law and estate planning that is invaluable to clients who have complex asset division matters tied up in their divorce.

Source: Wall Street Journal, "New Tax Laws Complicate Divorce," Arden Dale, Jan. 31, 2013


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