Spouses who choose to divorce typically understand that it will not be a simple process. Several different financial factors require consideration. When one spouse is a high-earner, it can raise additional questions regarding child support, property division and alimony.

At the beginning of 2019, new tax laws went into effect that changed how alimony is taxed. Under the new Tax Cuts and Jobs Act, alimony is no longer tax-deductible for the person who pays it, and no longer counts as taxable income for the person who receives it. If you are planning to divorce this year, don’t panic. Other ways to create your divorce agreement could help you from a taxation standpoint while still being fair to your ex-spouse.

How the new laws affect home ownership

The TCJA also changed how you may handle the family home in a divorce. The deduction for mortgage interest used to have a limit of one million dollars. The new tax laws lowered that cap to $750,000. Because of this, it may make sense for divorcing couples to sell their homes rather than try to keep them.

One thing that hasn’t changed is the rates for capital gains tax. People who make the choice to sell their home may be able to exclude a portion of the profit from capital gains taxation. An individual can exclude up to $250,000. Two people who decide to submit their taxes as married and filing jointly can exclude up to $500,000.

Child tax credits

The rate of the child tax credit used to be $1,000 per child, but that increased to $2,000 for each child who qualifies. This credit applies to a single person making less than $200,000. This can help offset potential losses in other areas.

What can I pay instead of alimony?

Some divorcing spouses might find it advantageous to make payments in the form of property division. The higher-earning spouse could make several payments to the other, over time, until the total equals the agreed portion of the first spouse’s assets. The advantage here is that most of the time, division of property is not subject to taxation. However, this may not be a good choice if there is a chance that the paying spouse could go into bankruptcy, which could eliminate the payments.

Those who can afford it may even decide that the best course of action is to just make one large payment to their ex-spouse. This can help prevent conflict and arguments over the years. That could make this option worth pursing just for that reason.

Conclusion

The best course of action for anyone considering divorce in Alabama is to involve impartial and experienced third parties. A financial planner, a divorce attorney and others can be a valuable resource if you’re not sure exactly how to handle your divorce. They can also help you keep your emotions in check and see the bigger picture as you move towards your new future.