Pennsylvania couples who are in the process of a divorce may need to consider the new tax laws when negotiating alimony. The American Taxpayer Relief Act (ATRA) passed by Congress in January may affect spousal support if it bumps the payee's income into a higher tax bracket. There are ways to circumvent this issue that may benefit both the payee and the payer.
One of the largest provisions of ATRA was to raise the tax rate on high income earners. For a single filer, such as a divorcee, this would impact any income above $400,000 annually. Spousal support is typically considered to be taxable income. Therefore, during alimony negotiations, it might be wise to consider the tax implications. In some cases, accepting a lump sum payment upfront, which is non-taxable, instead of monthly alimony payments may make more financial sense.
Dividing up assets is another area that requires careful consideration. ATRA has made this process even more complex. Spouses who hope to get the most out of a divorce settlement may wish to consider negotiating for retirement funds and cash assets instead of property or stocks. This may help avoid capital gains taxes.
The spouse receiving alimony needs to ensure that he or she gets an amount that can allow him or her to maintain a reasonable standard of living as a single person. Therefore, Pennsylvania couples who are in the process of working out a divorce settlement may want to look at all the possible tax implications that can affect alimony and assets. Negotiating spousal support, particularly in high-asset divorce cases, may be challenging, but it can be done successfully with the right kind of guidance.
Source: Forbes, "Divorcing Women: Will The New Tax Laws Impact Your Divorce Settlement?" Jeff Landers, Feb. 20, 2013