Tags: divorce | tax cuts and jobs act | divorce and taxes

Divorce and Taxes: How GOP Plan Could Make Splitting Up Costlier

Divorce and Taxes: How GOP Plan Could Make Splitting Up Costlier
Donald Trump and his first wife, Ivana, in 1988. If Republican lawmakers get their way, untying the knot could get even more costly for affluent Americans. (Marty Lederhandler/AP File)

Wednesday, 08 November 2017 12:20 PM

President Donald Trump knows first-hand that a divorce -- or in his case, two -- can be messy and expensive.

But if Republican lawmakers get their way, untying the knot could get even more costly for affluent Americans.

To help pay for sweeping tax cuts, the GOP’s “Tax Cuts and Jobs Act” includes a controversial provision that would scrap the break divorcees get for paying alimony. If section 1309 of the tax bill becomes law, financial planners and divorce lawyers say the result could hurt all but the uber-wealthy.

“I’m just praying this does not go through,” said Jacqueline Newman, a New York divorce attorney at Berkman, Bottger, Newman & Rodd LLP. “For many people in different income brackets, this is going to be horrible.”

Right now, every dollar in alimony reduces the payer’s taxable income by the same amount. Critics say getting rid of the deduction would not only increase the financial strain of supporting an ex, but could also lead to more legal disputes and deprive the less-well-off party of much-needed income. Historically, men have paid alimony to women.

And while the change is likely to affect a large swath of Americans, the extra revenue the government stands to gain -- roughly $8 billion over a decade based on one estimate -- amounts to little more than a rounding error versus $1.4 trillion of tax cuts House Republicans are proposing.

“Taking that financial sweetener away makes it tougher for the payer to agree and honestly it just leads to higher lawyer bills to litigate the issue,” said Chris Chen, treasurer of the Association of Divorce Financial Planners. “It is going to make life miserable for hundreds of thousands of people.”

About 800,000 American couples called it quits in 2015, a rate of about a 100 divorces every hour, figures from the National Center for Health Statistics showed. While divorce rates have dropped among younger adults in the past quarter century, those among older married couples have risen, according to the Pew Research Center. For those over 50, divorce rates doubled.

“Reality is, it doesn’t necessarily dissuade anyone from getting a divorce but does mean both sides could be worse off,” said Justin Miller, national wealth strategist at BNY Mellon Wealth Management.

Tax breaks like the alimony and mortgage-interest deduction (which, by the way, is also being limited by the House bill) are critical to many divorced families trying to make ends meet, says Manhattan divorce lawyer Michael Stutman.

“Particularly in New York, you have a lot of couples who are barely keeping one house together with their income and now they’ve got to do two,” he said. “It is such a devastating economic event for most families.”

Eliminating tax benefits could “cost them another $4,000 or $5,000 a year,” Stutman said.

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President Donald Trump knows first-hand that a divorce -- or in his case, two -- can be messy and expensive. But if Republican lawmakers get their way, untying the knot could get even more costly for affluent Americans.
divorce, tax cuts and jobs act, divorce and taxes
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2017-20-08
Wednesday, 08 November 2017 12:20 PM
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