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Tax Changes Affecting Family Law

December 2018

By: Ferrier R. Stillman and Kerianne P. Kemmerzell

The Tax Law enacted in 2017 has tax implications in 2018 and 2019.

Alimony.  Marital settlement agreements and court orders which are signed after December 31, 2018, are no longer allowed legally to make alimony payments tax deductible to the payor and taxable income to the payee.  This is even if the parties agree that alimony will be tax deductible to the payor and taxable to the payee.  However, if after December 31, 2018, the parties modify an existing agreement reached prior to December 31, 2018, which made alimony tax deductible to the payor and taxable to the payee, then the parties, only by agreement, may keep that provision.  This is a significant change to federal tax law that will affect most alimony provisions in both marital settlement agreements and court orders.

Personal and Dependent Exemptions.  Personal exemptions have been suspended, beginning with the 2018 tax year.  This means taxpayers will no longer be able to claim personal exemptions for themselves, their spouse, and their dependent children or relatives on their 2018 federal income tax return.  However, the standard deduction amounts for all taxpayers and the child tax credit has increased.  The standard deduction for joint filers increased from $12,700 to $24,000, head of household increased to $18,000 and all other filers increased from $6,350 to $12,000.  The child tax credit increased from $1,000 to $2,000 per qualifying child.  In addition, a new credit emerged for dependents who do not qualify for the child tax credit.  For some taxpayers, these increased deductions could compensate for the suspended exemptions.  Conversely, for taxpayers with many dependents, the new tax law may result in a higher tax bill.  This federal tax law change is in effect through the 2025 tax year.  These modifications to the law on exemptions and dependents will likely affect marital settlement agreements.

If you have questions about how these tax law changes may affect you and your clients going through a divorce, or if you have questions about other family law issues, please contact a member of the Tydings’ family law department.  The firm has offices in downtown Baltimore and in Towson.

This alert has been prepared by Tydings for informational purposes only and does not constitute tax or legal advice.  If you have questions about tax issues, contact your tax professional.

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