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How Do the New Tax Laws Impact Your Divorce Settlement?

Divorce attorneys in Pasadena stress to clients that it's always important to consider the tax implications of a divorce settlement. Accepting a settlement that results in an increase in taxes lowers the overall amount of money you have to begin your post-divorce life.

The American Taxpayer Relief Act (ATRA) was passed by Congress and went into effect on January 1, 2013. It was intended to prevent federal tax increases on the middle class and to help avoid spending cuts that might push the economy over a "fiscal cliff" that would ultimately harm everyone. The provisions in this ARTA may have an impact on your divorce settlement if you fall into the highest tax bracket.

The biggest change with the ARTA is that there is a new 39.6% tax bracket for the single filer with an annual income greater than $400,000. These high worth individuals will will now pay the 39.6% tax rate instead of 35% on income in excess of the $400,000 threshold. Child support is not considered taxable income, but alimony is fully taxable.

For clients with high incomes, an upfront lump sum payment in lieu of traditional alimony can have significant tax advantages. However, this requires deliberate financial management to make sure it is enough to sustain the recipient's lifestyle over the long term.

The capital gains tax rate for taxpayers in the new 39.6% income tax bracket has been increased from 15% to 20%. This could make cash or retirement funds a better deal for you in your settlement than stocks or real estate.

Individuals with a high net worth should see a divorce financial adviser for insight as to how the new tax laws will affect their divorce settlement. There are many variables to consider, so paying for personalized advice in this area is a smart investment.

How Can We Help?

If you are in need of an attorney to handle your divorce, please call our office at (626) 683-8113 or email us at info@PasadenaLawOffice.com. Our Pasadena divorce firm has extensive experience helping clients get the settlement they deserve.

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