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2018 Tax Plan and How It Impacts Divorce

JENNIFER MOSHIER: Hi, there. I’m with Moshier Law in Scottsdale, Arizona.

CRAIG CHERNEY: And good afternoon. My name is Craig Cherney and I’m with Canterbury Law Group in North Scottsdale.

JENNIFER MOSHIER: So Craig and I met when we were litigating a case a few years ago. It was a very, very hostile, adversarial case and we became like-minded about collaborative law after realizing just the damage that litigation can do.

CRAIG CHERNEY: Absolutely. So let’s transition to our topic today, which is the new tax plan passed by Congress. Here we are in 2018. What is the impact, Jennifer, on divorces and filing timing for new divorces?

JENNIFER MOSHIER: Okay. Well, we were just talking about that because every divorce has a cooling-off period. Once you file for divorce, you have 60 days before your court can even grant your divorce. Here’s what that means: If you file now and you start litigating, you may not even be done by the end of the year. That’s why collaborative law is something to consider in light of the new tax plan that’s available.

CRAIG CHERNEY: Let’s talk about the implications of the new tax plan, because this is critical information. If you don’t have a decree entered and signed by a judge by the end of 2018, the spousal maintenance payments within that agreement will remain tax deductible. However, if you tiptoe into 2019, all bets are off. The law says spousal maintenance is?

JENNIFER MOSHIER: It’s tax deductible until 2019. If you get a new agreement in 2019, it is unlikely that your spousal maintenance will be taxable to you if you’re the recipient or tax-deductible as a payor.

Craig, why is that important? Because I think it creates incentive if you know you’re going to get a tax deduction as a payor, correct?

CRAIG CHERNEY: Absolutely. So if you’re a high-income earner today in 2018 and you’ve been thinking about a divorce for a period of years, this is the year to pull the trigger because your tax deductibility of your spousal maintenance payments to your ex-wife will be tax-deductible.

For example, if you spend $5,000 a month on spousal maintenance, net dollars, that’s about $3,600. But in 2019, that $5,000 is $5,000.

JENNIFER MOSHIER: Absolutely. And one more thing to consider: What if you’re not ready to divorce but you know that you’re thinking about separation? My thought is get the separation deal inked this year so that you protect yourself, wouldn’t you say?

CRAIG CHERNEY: That’s really good advice. The time is now. It’s really time to act because, financially, it’s in your best interest.

JENNIFER MOSHIER: Absolutely. Thanks a lot.