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How new tax rules may influence a divorce settlement

For more than 70 years, Maryland residents and others who receive alimony were required to claim it as income. Those who paid alimony were allowed to use it as a tax deduction. However, this is no longer the case as of the first day of 2019. Other changes to the tax law related to mortgage and SALT tax deductions could also play a role in how a divorce settlement is structured.

While the tax law changes may alter how a person goes about settling a divorce, the rule changes are not necessarily a bad thing. For instance, an individual could receive a lump sum payment instead of alimony. It could also be possible to receive payments for property division. In this scenario, a person receives payments equal to the market value of an asset. Parents with children may be able to claim a child tax credit of up to $2,000 per qualifying child.

Those credits begin to phase out for those filing single who make $200,000 or more. The same is true for couples who make $400,000 or more together. However, as alimony payments are no longer considered income, it may be possible to receive alimony payments and still qualify for child tax credits. This could help to make up for a reduction in alimony received.

While alimony may be an important part of a divorce settlement, it is generally one of many issues that must be addressed. Other concerns may include how to divide property or raise a child after a marriage ends. Those who have a prenuptial or other agreement drafted prior to 2019 may want to have it reviewed by an attorney. This may help determine whether the agreement is still valid if a divorce occurs after the end of 2018.

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