How Tax Changes Will Impact Divorces in Colorado
There has been a lot of discussion in the media about how the 2017 tax reform bill will impact American, both in the short-term and the long-run. As it turns out, the tax reform bill will have an impact on current divorce laws, which can make divorce proceedings confusing and frustrating. This is why consulting with a Denver, CO divorce attorney will be so crucial in the coming year.
The team at Dunsing & Deakins, LLC would like you to consider how the tax reform bill affects the way alimony/spousal maintenance payments are reported on your taxes. Hopefully this gives you a sense of what’s ahead and why it’s crucial to consider your financial future as part of your divorce.
How Tax Reform Affects Alimony/Spousal Maintenance
Prior to the tax reform bill, alimony and spousal maintenance were handled as follows. The spouse that pays maintenance is allowed a tax deduction for their spousal maintenance; the spouse receiving maintenance would then report any maintenance received as income when filing taxes.
Under the new tax laws, circumstances have changed. The tax reform law now eliminates both the deduction on maintenance payments as well as the need to report maintenance as income in your tax return. This could seriously impact the spouse paying alimony given the loss of this tax deduction. The result may be messier and more contentious divorce proceedings when it comes to alimony payments.
When Do These Changes Go Into Effect?
These changes to existing alimony tax laws do not go into effect until 2019. That means that as long as a separation agreement is signed by December 31, 2018, you and your spouse can decide whether or not the new tax laws will apply to your divorce and spouse maintenance.
Changes to Child Dependency Exemptions
If you and your spouse are negotiating child custody, the changes to previous tax laws are important to keep in mind. As of January 1, 2018, the child dependency exemption has been eliminated. However, the child tax credit has increased to $2,000 for each qualifying child.
Only the custodial parent will be able to benefit from the child tax credit unless some agreement was reached, allowing the non-custodial parent to claim the child as a dependent on their taxes.
Proposed Changes to Colorado Family Support Obligations Due to Changes in the Federal Tax Laws
The current guideline advisory amount of spousal maintenance in Colorado's maintenance statute, and the definitions used for calculating gross income and adjusted gross income for maintenance and child support awards, reflects the anticipated tax consequences to the payor and recipient under the prior tax law. As a result of the new tax law, HB18-1385 was introduced (by State Representative Dylan Roberts and State Senator Don Coram) to modify existing spousal maintenance guidelines. The bill adjusts downward the advisory guideline calculation of the amount of maintenance in circumstances where the maintenance awarded is not deductible by the payor spouse and is not taxable income to the recipient spouse. The bill also amends the definitions of 'gross income' and 'adjusted gross income' to properly reflect the tax implications of maintenance obligations. At the time of this writing, this Bill has not yet been passed by the Colorado legislature.*
How Our Family Law Attorneys Can Help
These tax and divorce issues can become more complicated and granular depending on a number of factors, which is why having skilled divorce lawyers on your side is helpful. We can advise you on future tax matters as well as current tax laws that apply to alimony and child support. Knowing the laws as they stand now as well as the tax changes to come can give you a better understanding of your financial future after divorce.
Any concerns you may have can be discussed in full detail. Our goal is to provide you with a full understanding of how legal decisions and changes in legislation affect you.
Contact the Lawyers of Dunsing & Deakins, LLC
For more information about your legal rights during a divorce and what can be done to ensure the most ideal outcomes, it’s important that you speak with our team of experienced lawyers. Our legal team will keep your needs and your spouse’s needs in mind, with added focus on what is best for any children involved in the matter. We are here for you.
*UPDATE: This legislation passed the Colorado legislature Governor John Hickenlooper signed the Act into law on May 24, 2018.