Two Alternatives to Paying Alimony and Three Key Actions to Take When the Federal Alimony Tax Deduction is Eliminated

If you are separated or considering divorce in New Jersey, you might be concerned about potentially being obligated to pay alimony to your spouse, especially in light of the new federal tax law.

Significantly, for divorce agreements executed on or after January 1, 2019, alimony payments will no longer be tax-deductible to the payor or taxable to the recipient for federal income tax purposes.

Therefore, instead of risking a costly outcome by the court, you might negotiate with your spouse for an alimony “buy-out” or disproportionate distribution of marital assets.

An alimony “buy-out” is where the spouse who is legally obligated to pay alimony pays the other spouse a lump sum  – calculated by present valuing an appropriate amount and duration of alimony to today’s dollars. 

Alternatively, your spouse might be able to meet his or her future financial needs by receiving a greater share of the marital assets.

Maximize the success of your alimony negotiation with these alimony alternatives by taking these three key actions:

  1. Know how much money you have and how much you’ll need to move forward.  

          Ideally, consult with your financial or tax professional for a long-term plan that meets your financial goals for the future.  This can give you valuable guidance for structuring your divorce settlement agreement to meet your expenses, maximize savings and minimize tax consequences.  

  1. Determine your priorities and those of your spouse.  

          It’s likely that you and your spouse each values certain issues more than others.  For instance, it might be more important for you to keep your pension and more important to your spouse to have more liquid assets up front to meet initial expenses after the divorce.

  1. Use a neutral financial planner or forensic accountant with mediation skills.

          You might use a neutral financial planner to work with both or either of you to obtain a complete list of marital assets and values and run financial analyses, including net cash flows.

          If there’s a business, you can save time and money by jointly hiring a forensic accountant skilled in mediation for an “engagement calculation” or similar analysis to determine an estimated value of the business for purposes of the divorce.

          An engagement calculation generally costs far less than a formal business valuation report prepared for court litigation (though you should consult with your attorney as to the pros and cons when a divorce complaint has been filed with the court.) 

          The costs of reaching an agreement with your spouse out of court are likely to be a fraction of what they’d be if a court were to decide the issues for you.

          As always, it is extremely important to consult with a competent and qualified accountant or tax advisor before making any decisions.

         Please call or click here to schedule a personalized consultation and receive substantive legal advice and a customized strategy for your divorce or separation.

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