As a result of the tax-law changes made in 2017, alimony and child support payments are no longer taxable for divorcing couples. Prior to the tax overhaul, some individuals had to claim their support payments as taxable income.
For divorces finalized on January 1, 2019, and later, court-ordered payments you provide to an ex-spouse do not count as a deduction on your income tax form. If you receive alimony or child support payments from your ex-spouse and your divorce became final after 2018, the funds you get do not count toward your taxable income.
Splitting property and assets during a divorce may reduce your tax liability
Kentucky divides property acquired during a couple’s marriage through its equitable distribution laws. Typically, a family court judge determines how to divide assets between the two spouses based on fairness, not by equality.
One spouse, for example, may need to buy out another spouse in order to maintain ownership of a particular property. Splitting property and assets may help in reducing your tax liability, but a family court judge does not generally consider this an issue.
Lowering support payments may allow for tax advantages in a retirement-fund division
If you are at least 59-and-six-months of age, negotiating a lower amount for the alimony payments you will make may help both spouses. As reported by Forbes magazine, in exchange for reduced support, a non-working spouse may receive a larger portion of his or her working spouse’s retirement fund at pre-tax values. This may work out for support payers by their gaining a tax-deduction benefit similar to what was obtainable before the changes in the tax law took place.