The American Taxpayer Relief Act was passed Jan. 1, 2013, in order to avoid the so-called "fiscal cliff" that would have resulted in deep cuts to the federal budget and increases in taxes. However, the Act, while staving off the worst of the cuts and tax increases, may still have an effect on the negotiation of settlement agreements. Some provisions of the Act could affect such items as spousal support and division of property.,p>One of the most important provisions of the American Taxpayer Relief Act was to raise taxes on higher levels of income. If you must file singularly and your annual income is greater than $400,000, you will pay 39.6 percent in income taxes on earnings over that amount. Alimony payments must be declared by the recipient as income and can be deducted by the payer. In rare circumstances, the partners may agree to treat alimony as non-deductible and non-income, or partners can agree to a lump-sum payment. It is very important that both spouses understand the implications of alimony if it is included in the agreement.
Another important consideration is how the Act will affect your property division. There is a 3.8 percent Medicare tax on gains over $200,000 for a single filer as well as a 20 percent capital gains tax. This means that gains over $200,000 could be subject to tax rates up to nearly 24 percent, a fact that definitely needs to be considered by those who are dividing large assets.
An Illinois family law attorney can explain the options available to a divorcing spouse who must divide property or may be paying or receiving alimony. By consulting a family law attorney, spouses may find that they can make more informed decisions about these important factors in their settlement agreements.
Source: Forbes, "Divorcing women: Will the new tax laws impact your divorce settlement?" Jeff Landers, Feb. 20, 2013