Many readers in Michigan are probably familiar with the well-known statistic that nearly fifty percent of marriages will end in divorce. While d may seem like a new beginning for some, others may feel overwhelmed by all the things to be considered during the divorce process. Now, in 2013, those entering the family law court system will, in addition to all the complex decisions associated with divorce, have to consider how the new tax will impact their divorce settlement
Michigan residents will find it interesting to learn that earlier this year Congress passed the American Taxpayer Relief Act to avoid going over the "fiscal cliff." Under this new law, single filers with an income greater than $400,000 will be taxed under at a new, higher rate of 39.6 percent. If one spouse is receiving post-divorce alimony, these funds will have to be declared as taxable income. Child support, however, is neither taxable income nor is it a deductible expense.
Another provision of the new tax law impacts the division of assets and investments. Now, there is a 3.8 percent Medicare surtax on all capital gains, dividends and any other income over $200,000. As couples with investments and other financial assets prepare for divorce, they may also have to take into consideration how asset growth will affect their post-divorce tax burden.
Family law legal issues in 2013 may get more get complicated under the new tax law or lead individuals to take on a new approach to their divorce. Those in the process of a divorce should consider consulting with an experienced family law attorney to help navigate the new tax law and to understand the ATRA's impact on one's divorce negotiations and settlement agreement.
Divorce is not always a simple process and can have long-term implications and obligations, such as child support and spousal support payments. It is important to consider these issues early on to avoid complications later.
Source: Forbes, "Divorcing Women: Will The New Tax Laws Impact Your Divorce Settlement," Jeff Landers, Feb. 20, 2013