An Awkward, but Important Conversation About Divorce for Middle to High Income Earners

Jan 29, 2018 | Michele L. Perreault

Divorce Attorney Michele L. Perreault is advising her clients on an under-the-radar provision in the new tax bill passed by Congress, which was signed into law by the President that has a major impact on the financial outcome for families going through a divorce. The new tax bill eliminates the tax deductibility for alimony, which in Wisconsin is called maintenance, for any parties whose divorce is not completed by December 31, 2018.

“This law is going to create two classes of people: those who are divorced by December 31, 2018 will be able to utilize the tax law to potentially save tens of thousands of dollars in taxes per year – leaving more money for both households, post-divorce – and those who are not divorced in 2018, who will no longer be able to structure support payments to maximize household income,” said Perreault, who is the Chair of the firm’s Family Law Practice Group. As long as parties are divorced in 2018 (or earlier), their future payments can remain tax deductible. Waiting just one day too long to file for divorce can make a substantial financial difference, she added.

The change in the law has led to some awkward conversations with clients and potential clients. Perreault, who practices throughout Wisconsin continued, “despite what some might think, family lawyers typically urge clients to make every attempt to reconcile their relationship prior to filing for a divorce or legal separation. Now, however, we have to alert clients that it may well be in everyone’s best interests to file for divorce sooner rather than later to ensure that the divorce can be completed in time to take advantage of the tax law before it changes.” That is particularly true in Wisconsin, due to a 120-day waiting period from filing to the first date that parties can be legally divorced.

“If someone is strongly considering filing for divorce in 2018, to have a more realistic chance of it being completed by the end of the year, we are advising people that they should file no later than mid-June for a realistic chance of getting the divorce negotiated and resolved before the end of the year. For those people with more complex financial circumstances, the sooner they file the better.”

Skilled family lawyers can advise clients and potential clients whether this change in tax law will likely have a substantial impact in individual situations before a client decides whether to make the decision to file or not. “This is not a situation where lawyers are ‘pushing divorce’ on those who are on the fence, but it is important that people make informed decisions about their future with as much information as possible,” said Perreault.