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Tax laws can affect propery division negotiations

Following the announcement of the tax law changes that will apply to divorces in 2019 and afterwards, experts expected a rush of couples to process their divorces to take advantage of existing laws. Starting on Jan. 1, 2019, alimony will no longer be tax deductible for the payer and no longer reportable as income by the payee. This led experts to believe that individuals would rush divorces to process in 2018 to avoid negotiations under the new laws. Surprisingly, some attorneys in Pennsylvania and across the country are not seeing an increase in divorce cases. Whether divorces occur in 2018 or 2019, property division is still a difficult part of the process.

Reportedly, property division can be particularly difficult for couples over the age of 50. Many couples in this age demographic have more traditional roles where the husband earned an income and the wife stayed home to raise the kids. Most of these couples find the most difficult negotiations in a divorce center around their most significant assets, often the family home and/or retirement accounts. 

Tax considerations often affect the negotiations over property division. Sometimes an asset may appear to be worth more money, but the value may actually be less when taxes are factored into the equation; and that may influence one's thinking about which asset to request. This issue often comes up with retirement accounts. Roth IRA accounts involve individuals paying taxes upfront, while taxes are paid when disbursements are made out of 401(k) accounts, which is often years later. If a couple shares both a Roth IRA and a 401(k) and both appear to contain the same amount of money, the Roth IRA will likely be viewed as more valuable.

Tax laws are complicated and may be difficult to apply to divorce scenarios.  Pennsylvania family law attorneys can advise clients of the best way to approach property division negotiations with a spouse in light of all applicable tax implications. An attorney is typically a helpful advocate throughout the legal process of ending a marriage.

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