Can Your IRA Be An Alternative To Alimony Payments?

Divorce Document

A new trend on how people pay spousal support will involve the use of their retirement accounts (IRA) to avoid the implications of a new tax law.

The Tax Cuts and Jobs Act, which will be effective in 2019, and this includes key changes to alimony payments for divorcing couples. The new system will no longer deduct alimony payments to the payer’s income, while the payee will not have to shoulder the tax responsibilities at the same time.

New Alternative

If you filed for divorce in Colorado, a family lawyer from the Law Office of Gordon N. Shayne in Colorado Springs, CO, may guide you on how to use your IRA as a bargaining tool for a settlement. Remember that this would only be a favorable solution to avoid paying taxes on alimony if your partner is willing to wait before they can take money from the IRA.

There is a 10% penalty if a person withdraws money before they turn at least 60 years old, although transferring an IRA to your spouse should be tax-free. As much as possible, it’s best to finalize your divorce within this year.

Divorce Subsidy

Any divorce finalized until Dec. 31 will still follow the current alimony system, which deducts payments from a spouse’s income and remains taxable for recipients. Those who receive alimony may think that the new law is beneficial for them since they won’t have to pay taxes.

The caveat on this involves a smaller amount for spousal support since your ex-partner will have to declare payments as part of their taxable income. Many divorce lawyers expect negotiations to become more hostile due to disagreements over alimony, so think about finalizing yours before the end of 2018.

Conclusion

You should first consult with an attorney or a financial advisor before you consider using your IRA as a form of alimony payment. What’s your strategy for providing spousal support?