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Tax changes may increase divorce costs for some couples

For parents in Washington who are considering a divorce, it will not be possible for them to alternate taking exemptions for children any longer. This has been eliminated by the Tax Cuts and Jobs Act passed in late 2017.

Instead, a single parent who has custody can claim head of household status as long as the parent pays over half of the household expenses and the child lives with that parent more than half the time. This will represent a significant tax savings. This parent will also be able to claim the child tax credit, and the IRS has not clarified whether this will be tradeable. Parents can create a divorce agreement that allows for flexibility in case this is ruled tradeable.

Under the new law, starting with divorces finalized in 2019, alimony will no longer be tax-deductible for the payer. This is likely to result in the recipient getting less alimony even though it will no longer be necessary to pay taxes on the payments. Many other parts of the act are due to sunset in 2025, but this part is not. It is unclear whether Congress will make changes, and couples may want an alimony agreement that can be revisited in case of any changes in the law.

In addition to these changes, which may have implications for how couples negotiate child custody and child and spousal support, there are other considerations for property division that couples getting a divorce should keep in mind. For example, it is important to take into account any taxes that will lower the value of assets. A home might have the mortgage paid off, but there may still be costs associated with insurance, property tax and upkeep. Certain rules must be followed when dividing some assets, such as pensions or 401(k)s, to avoid penalties.

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