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How can I minimize my taxes after divorce?

On Behalf of | Jul 22, 2019 | Divorce, Firm News |

Alimony — or spousal support — is a necessary but contentious aspect of Massachusetts family law. In the past, those who were ordered to pay support could at least deduct the payments from their taxes, while their ex-spouses claimed the payments as income and paid taxes accordingly. This created a net reduction in taxes and made it easier for people to afford those monthly payments. With those tax deductions now eliminated through recent tax reforms, couples must look elsewhere for tax savings after divorce.

Offsetting the cost of monthly alimony can be accomplished through careful property division decisions. For example, if a couple shares retirement accounts or other savings accounts, the intended recipient of support could agree to lower monthly payments in exchange for a larger portion of those assets. This not only helps the recipient by setting him or her up with a more readily available financial foundation for after divorce, it also makes it easier for the payer to manage his or her monthly finances. This also reduces the amount of alimony for which that person would otherwise be taxed.

Investments that produce large gains should also be considered during property division. Gains of up to $39,475 are not taxed, and after that gains up to $200,000 are taxed at 15%. If a couple has investments that produce significant gains, it might be smart to transfer one of those investments to the lower-wealth spouse. The value of the investment coupled with the resulting gains may either completely satisfy or significantly offset alimony.

Although it can be frustrating for those who are ordered to pay, spousal support is extremely important for the financial security of lower-earning spouses after divorce. However, without the tax deduction that was available in the past, monthly alimony payments might become more of a burden for Massachusetts payers. These individuals may want to explore other solutions and alternatives to monthly payments which can not only positively affect their taxes, but can also make paying alimony easier.