It's no surprise that many tax considerations end up affecting the
time at which you decide to divorce. It's like throwing a giant wrench
into the workings of the entire tax system, because at first you're
viewed as a
joint filing with your spouse, and then all of a sudden you're now
legally separated from that tax standpoint, leaving questions thrown up in the
air without no safety net answers to break the falls. Believe it or not,
though, when I
say that it's gotten even more complicated with the federal tax law
that was passed back in 2012.
It's called the American Taxpayer Relief Act, a new law raising taxes
on income and investments for the wealthy. Imagine what this could potentially
do to wealthy individuals contemplating divorce – you would have
to heavily consider alimony in some situations, plus determine further
whether or not to divide stock portfolios, pension plans, executive-pay
packages and many other assets to be included. Why would alimony be such
a big deal?
For starters, consider that adjusted gross income rates would skyrocket
well above $400K, which is the new income bracket threshold for single
filers. That's 39.6%. When you're considering income and how the
Relief Act plays into that will determine whether or not alimony is a
good or bad idea. Look at it this way: let's say an athlete earning
over $2MM annually faces a divorce petition – with alimony, that
athlete would have to pay somewhere around $800K each year. Sure, the
paying ex-spouse would receive a hefty tax deduction, and that may be
a sweet deal. The client, the other ex-spouse, though gets the short end
of the stick, receiving more taxable income.
That's not all to consider when dealing with taxes and finances under
this Act. What about Medicare, for example? You'll find out soon enough….