Changes in tax law and the timing of your divorce

The Republican tax law that went into effect in January ’18 will impact couples divorcing. One important change is that any agreements reached after December 31st, 2018, will not allow a tax break for alimony payments. That’s right, they will be taxable, beginning next year.

In addition, benefits for children and the values of privately owned businesses and partnerships will also be impacted—and anyone whose agreements will include these, should take careful note of the new law. It is actually wealthier Americans who will be most impacted by this law. Alimony deductions totaled more than $10 billion in tax year 2010 alone.

If you are considering divorce now, take a closer look at these 4 things ASAP before deciding.

Alimony, which has been deductible for the spouse paying it and taxable for the ex receiving it has led to underreporting on taxes. Those paying claimed payments were higher, those receiving, claimed they were lower. Under the new law the spouse paying alimony will be taxed on the full amount and the one receiving it will pay nothing. If you want to be under the old system, get that agreement finalized by year’s end, which means avoiding a drawn out fight in court.

Prenuptial agreements have been using clauses that allow the calculation of alimony based on years of marriage and language saying they are deductible for one spouse. The new law may not allow these clauses to hold up beyond the New Year, even though they are written agreements. If such an agreement is important to you, negotiate it now, before the end of the year.

Business valuation is the third consideration for this new tax law. Divorce settlements have always included how a business should be valued—but the new law overrides some of this with specific language. It increases the cash flow of certain pass-through entities, which is where the taxes on earnings are paid by the owner, not the company. This will raise their value. Increasing cash flow and reducing taxes will increase the value of the business—so whoever keeps the business will have to pay their spouse more. A business is usually the most contested asset in a divorce, and the numbers for settlement always come down to its value. This impacts child-support, which is generally only negotiated once and does not change. Therefore the value of a business will have a lot of impact on the final support agreements. This issues could greatly hold up a divorce settlement as the partners would want to see what happens with value in the next tax year.

The 4th and final consideration is other assets, and any tax benefits associated with these. Do you want part of a spouse’s retirement plan or is the house a better deal for you in the long run? How do you want to share costs such as college tuition with your ex? Should these things be based on who earns what or can they be traded off for other assets? Are there other assets that you need to carefully consider how to split up, given what their use/value will be some day, and any future downsides to them?

Divorce is serious business and getting an agreement that is both fair and help to protect your rights not only now but in the future, can be a challenge. Find a solid lawyer or an experienced negotiator, do your homework, and be open to compromise. If you can find a way to work together, rather than battle it out in court—both of you can emerge winners.

A lavish wedding may increase your chances of divorce

Maybe a quiet wedding in the judge’s chambers is not such a bad idea after all. Or perhaps a small, intimate get-together with close friends or a no frills ceremony is the best way to go.

Splendid Insights, a research firm, conducted a survey and found that couples who spent in excess of 30,000 on their nuptials were more concerned about and focused on—impressing their guests than they were on the whole point of the vows themselves. Those who spent less than 10,000 had the goal of their union before that of throwing an elaborate event.

The economist took this information and did a feature story on the topic that uses a 2014 academic study of American marriages that found a direct link between a higher wedding cost and an increased rate of divorce. The pricier and more elaborate, the greater the chance it would not last. Yikes…

Wedding overall are a pricey event, a major cost for future brides/grooms and/or parents of the bride. The average cost of a wedding in 2017 was 26,000—a nice house deposit for those who are frugal. However wedding costs have decreased over the last decade by 6%–which is perhaps a reflection of the recession and high student loan debt. But with costs for rings, bachelor and Bachelorette parties, rehearsal dinners, and after wedding brunches—it’s a huge industry.

Then there is the cost of time and energy to plan the event and before and after parties. Wedding planners are used by less than a 5th of brides, but overall costs can still be staggering due to all the extras, options, and (heaven forbid) destination weddings. Those who opt to go all out suffer greater angst and stress—and this can take a toll on ALL their relationships, not just with their intended.

So if you are recently engaged and want to cut your chances of divorce, keep that guest list trimmed, resist all those extras—and focus on the whole point of your big day, one another and the life you are just starting together.

THE GOOD DIVORCE

The NY Times Modern Love column ran a column a while back that was penned by Elizabeth Covington, a New Yorker who is the mistress/girlfriend to a man who left his wife for her—a wife who has befriended the author and made great efforts to include her in the family throughout the separation and impending divorce.

Wow, right? Well, of course these relationships are not as uncomplicated as they seem on the surface—and no, the wife wasn’t happy about her spouse asking for a divorce after falling for another woman, not happy at all. Yet she has taken the high road and reached out with friendliness and inclusion. So the question is why?

The comments on this piece (mine included) number almost 400 and counting. As you can imagine, anger at the author (and hubby) is what most (many women) readers write about. Comments like their selfishness, thinking only about their own wants and needs, not trying to fix the marriage, breaking up a “happy” family, are all expressed. There are also folks (mostly men) who think the women readers are being too hard on Josh. Then there are the ones who accuse Beka of being a “martyr”, manipulating the situation to gain attention…really???

This couple was a successful, power couple who had been married for quite a few years and have two “lovely” little girls. The author expresses her relief that she never wanted any of her own and was saving all her maternal instincts for these girls, really? Josh deals with all this by becoming extremely anxious and self-medicating with alcohol, standing somewhere in the background as Beka steps up to try and make the best of a devastating blow to her world and that of her children.

There will be folks who read this and who will stand on all sides of it—depending on their own experiences and past/present relationships. Many will feel rage, others sorrow, and still others will feel superior, thinking they could/would never behave like either Josh or Elizabeth. Not so fast…no one can be sure till they have been there and as Josh is quoted saying, many of their friends were divorcing for the same reason.

I am clearly old school and conservative with it comes to relationships. If you are a woman and are approached by a married man, say no upfront. Once you are in, it’s much harder to get out. If you are a guy (or woman) who is unhappy (apparently josh was “miserable”) in your marriage—seek professional help before trying to find a distraction/replacement. Many marriages can be saved, but not if the individuals don’t admit there is a serious problem and take steps together to address it.

It’s clear Beka would have been all in with counseling, addressing issues, working to meet Josh’s unmet needs—but if he wasn’t able or willing, the end would have been the same. Had Beka decided to act out her grief and taken this to the mats—a lot of money would have been spent and the anger and hurt would have helped create a very toxic environment for Beka, Josh, and mostly the children. Kuddos to Beka for doing what she could to make the best of a terrible situation that her spouse (and Elizabeth) created. No doubt Beka was not and is not a saint—though Josh told Elizabeth she is a wonderful and beautiful person. Indeed, her actions have clearly demonstrated this.

 

Domestic abuse does not lead to easy divorce

The NY Times ran a piece in May that details the harrowing experience of several women who suffered long term abuse in their marriages, yet were met with serious obstacles when trying to get their divorces that resulted in long delays and greater danger.

Domestic violence survivors are met with a number of obstacles when they try to leave their homes and marriages. The financial costs are often too steep for these women to afford, the legal system is complex and difficult to navigate without an attorney, and the spouse seeking the divorce must find their abuser and serve them with divorce papers. Not easy for all the women (especially but not solely) who end up in hiding, often in shelters for battered women. Often their spouses cannot be located, and the process of seeking divorce can stretch out years.

Divorce can be costly, emotionally and financially, for those who are not in abusive relationships. However when someone is, the cost goes way up and too often the victim has no money or other resources of their own to fall back on. The lucky ones have supportive family who can help them out with everything from housing to hiring and retaining a lawyer—but for the poor these resources often don’t exist. Then there are the spouses whose immigration status is shaky. They are at the highest risk due to a fear of getting involved with the legal system.

Lawyer fees can start in $6,000 to $7,000 range, which may as well be a million dollars for a woman with part time work and/or children to care for. If custody and dividing assets are involved, the costs can be much higher. When divorce is delayed the abuser will still have a say if the victim is hospitalized or needs medical treatment or care, decisions regarding the children will also be made by the abuser—and if a victim moves on to a new relationship, any children that result from it are legally considered to be the child of the spouse, regardless of whether they are or not. So long term separation is not a solution.

Some cities and municipalities have organizations that provide fee legal assistance to abused spouses seeking divorce. However there are just not enough lawyers and too often victims do not know where to find these resources. Abusers will also deliberately drag out the divorce, keeping their victims tied to them as the divorce process stalls and drags on. Some just disappear.