Tuesday, January 9, 2018

View from the Family Law Bench on the Recent Tax Reform Bill

VIEW FROM THE BENCH ON THE TAX REFORM BILL APPLIED TO FAMILY LAW – HONORABLE WESLEY D.TIBBALS

As many of you now know, the tax reform bill passed and eliminated the taxability and deductiblity of alimony for any divorce or separation instrument (as defined in section 71(b)(2)of the Internal Revenue Code) executed after December 31,2018. The article segment below was written prior to the passage of the bill, but is informative as to additional impact the bill may have on financial issues in family law.
“Another area of negotiation that could be affected under the TCJA is the party allowed to claim minor children as dependents. The proposed increase in the child tax credit from$1,000 to $1,600 per child would offer a greater tax break to the custodial spouse. The proposed elimination of the Alternative Minimum Tax (AMT) may enable the higher earning spouse to benefit financially by claiming one or more children on his or her tax return. Under current code, the AMT would often eliminate any potential benefit of sharing deductions between spouses, enabling the lower-earning spouse to claim the children and minimize his or her tax burden. Higher earning spouses have a more level playing field under the new legislation and improved rights to deductions. They also have a greater ability to benefit from filing as Head of Household rather than as single.
Tax reform could also affect state child support guidelines.Currently, child support is typically calculated based on the combined monthly net income of the parents. The net income and number of children affected is then compared to the statutory guideline criteria to determine the basic support obligation. Parents are responsible to provide their proportionate share of support based on those guidelines. This net income is calculated by subtracting federal, state, FICA, local and various line item deductions from gross income. The elimination of alimony deductibility and Alternative Minimum Tax adjust these bottom lines, as will the increase in child taxcredit and adjustment to tax brackets.”

--Donna Kline, House GOP Tax Proposal and the Impact on Divorce Negotiations