It’s generally not advised that people in Virginia, or any other state for that matter, rush to end a marriage, especially if children are involved. However, couples clearly aware that a legal split is in their future may want to attempt to beat the clock before the Tax Cuts and Jobs Act (TCJA) changes officially takes place in 2019. The reason is changes affecting child support and exemptions and alimony.
Elements of the TCJA eliminate the value of many of the personal and dependent exemptions that commonly applied to child support. The comprehensive law also increases standards deductions for all filing statuses, with one of the most notable ones being head of household (HOH). This means whichever newly single parent gets the HOH status following a divorce would have a significant advantage for tax purposes. To claim HOH, a filer must be unmarried, pay for more than half of the household expenses, and have a dependent who lives with them more than 50 percent of the time.
The HOH parent will also be eligible to claim the TCJA’s expanded $2,000 Child Tax Credit, which can be claimed for each qualifying child. Under the previous tax law, parents were able to alternate claiming children as exemptions to reduce taxable income. Under the TCJA, taxable income is no longer reduced with exemptions. It’s also not clear if parents will be able to continue to go back and forth with the Child Tax Credit under the new law. The big change with alimony is that payments will no longer be deductible by the paying spouse, and the recipient won’t have to report it as taxable income.
Because of the increased importance of the Child Tax Credit and HOH status, it can be more important than ever for a divorcing parent to work with a family law attorney. A lawyer may be able to structure a settlement in a way that minimizes tax consequences as much as possible for any client who will be paying child support or alimony starting in 2019. It could also be helpful for ex-couples to have settlement agreements that allow for some degree of flexibility since the TCJA expires in 2025.