Why you should divorce in 2018

You need to finish your divorce by December 31, 2018. If you do, you and your ex will have more money in your pockets and the only one who loses is Uncle Sam.

I’m Not a Nerd, I Just Want the Basics

The new tax bill eliminates the deduction for alimony paid for anyone divorced after December 31, 2018. Here’s why that’s important:

Let’s pretend you make $500,000 per year and your spouse makes $100,000 per year. Let’s also pretend you are going to pay $130,000 in alimony per year.

If you get divorced by December 31, 2018, you will pay $105,000 in taxes to the U.S. Government. But if you get divorced the very next day, January 1, 2019 (or later) you will pay nearly $50,000 more - roughly $153,000 in taxes. (See the “I have a scorching case of nerd-itis” section below for full details on all numbers in this section)

On the other hand, I also expect that alimony laws are going to change quickly. When they change, they’ll reduce alimony amounts substantially to reflect the new tax cost to the person paying the alimony. So if you’ll be receiving alimony – you’re also best off divorcing by December 31, 2018. (Not to get too tax technical in the basic section – but this all comes down to the fact that no matter how you slice it and dice it, any divorced couple whose divorce resulted in alimony and who finishes their divorce January 1, 2019 or later will pay more in taxes to the federal government under the new tax law.)

Paying less tax is always good. It doesn’t matter if you and your spouse make $600,000 or $60,000 - bottom line, this new tax bill is a tax increase on divorced or divorcing families, unless you get divorced in 2018.

I Have a Scorching Case of Nerd-itis and Want to See the Numbers

Only keep reading if you’re a massive nerd like me and want to understand where those numbers came from. Hate numbers? Just go tell your friends in bad relationships at your New Year’s Eve Party that you read an article that says they need to get divorced this year.

All federal tax calculations were completed using taxact.com.

Anticipated Modification to Alimony Law

For states with no alimony formulas, I expect Judges to make an adjustment to the amounts of alimony awarded to put people on roughly comparable footing to today’s numbers. Under the new tax bill, the combined net income of the couple is $366,024. To achieve a 60.76%/39.24% split (like would have happened in hypothetical above for pre-2019 years), alimony would need to be reduced to $80,923.

For states with alimony formulas (like Illinois), I’d expect legislatures to modify their formulas to new percentages to reflect this change in tax law. Again, I’d expect modifications to the formula that put people on relatively similar footing, but recognizing that there will now be less money to go around under the new tax bill.

Alternatively, all states could perform more complex calculations where they assess the tax impact to each spouse and offset the consequences of the new law, but I wouldn’t hold my breathe for judges or legislatures to start making simple mathematical calculations, let alone any complex calculations.

By: Andrew G. Vaughn (“Drew”)

Andrew G. Vaughn owns the divorce firm NuVorce and is a Professor at Loyola University Chicago School of Law. He has been named one of the Top 10 Divorce Attorneys in Illinois, is the only divorce attorney ever named an Innovator by Crain’s Chicago Business, and was recently told by his daughter that if he were a character in Moana – he would be Heihei the Chicken.

Questions, Comments, Hate mail? Send it to [email protected] or call him at 312-802-2897.