The Tax Cuts and Jobs Act of 2017 may change the divorce landscape for some couples in Michigan whose divorces are finalized after the end of 2018. The law sunsets in 2025, so it may not last, but in the meantime, couples should be aware of the changes. One of the major changes is to alimony payments.
For divorces finalized in 2018 and before, alimony is tax-deductible for the payer. This will no longer be the case for divorces finalized after that. Higher-earning spouses pay alimony to lower-earning spouses, and the tax deduction meant that for high-income spouses, it could be to their advantage to negotiate higher alimony to get a higher deduction. This will no longer be the case, and if alimony payments are lower, this could fall disproportionately on women since they receive the majority of alimony.
The custodial parent will no longer be able to claim a dependency exemption for children. However, the amount of the child tax credit has increased, and this may benefit women who still largely get custody. The income threshold for receiving this credit has also been increased.
Another change is that savings in 529 plans are no longer just for college. A parent ordered to pay tuition for children in grades K-12 can take money from the 529 plan to do so.
People should keep all of these points in mind when they are planning for and negotiating a divorce. Whether the divorce is finalized before or after these changes come into effect, couples may be happier with the outcome if they can negotiate property division and child custody instead of going to court. In some cases, even if the divorce is acrimonious, the couple might be able to reach an agreement through mediation where the goal is finding a solution that suits both parties.