How tax law changes could affect gray divorces

On Behalf of | Oct 26, 2018 | High Asset Divorce

Retirement accounts often become a primary asset when individuals aged 50 and older in Texas choose to end a marriage, even more so than the marital home and other commonly sought-after assets. For older individuals planning to untie the knot in 2019 or beyond, the Tax Cuts and Jobs Act will change how certain assets are handled. The most noticeable change is with alimony payments, which will no longer be deductible for the payer and claimable as income for the recipient.

In a high-asset divorce involving an older couple, negotiating the amount of alimony is still considered a relatively easy process even when tax law changes are considered. The biggest point of contention with divorce settlements of this nature is from where the money will come. It’s common in later-in-life divorces for the spouse who stayed home to raise the children to seek the marital home. However, some older individuals may benefit more from selling the home and putting the funds into an appropriate retirement account.

Tax consequences often become an issue in situations where one spouse gets the home, and the other person gets what seems like retirement account investments of equal value. The potential problem is that such assets may not be so equal when taxes are considered. For example, a highly valued brokerage account with embedded capital gains may be worth significantly less than its face value. With 401(k) or IRA assets equal to Roth account assets, the Roth account would be worth more since taxes are already paid.

The tax law will also affect the valuation of private businesses due to corporate tax breaks. Even if an older client is involved in a high-asset divorce and has no plans to sell his or her business, an attorney may recommend including its value during the asset valuation process. When it comes to pensions, a divorce lawyer can assist with the securement of a legal order for asset distributions. Advice can also be given on how to minimize tax liabilities in a way that protects retirement assets as much as possible, especially with clients receiving alimony they’ll no longer be able to claim and use for IRA or Roth contributions.