If you are in the process of finalizing your divorce, then you may very well pay less in taxes for many years to come if you can complete it by December 31, 2018. The high-earning spouse typically pays spousal support to the non-working or low-earning spouse for a number of years. Spousal support payments have been tax-deductible to the paying spouse and taxable to the receiving spouse until the Tax Cuts and Jobs Act of 2017 changed this tax treatment making spousal support non-deductible to the paying spouse and non-taxable to the receiving spouse as explained in this article. However, wealthy couples may be unable to complete their divorce agreements in time simply because they have more valuable and complex assets and rushing to complete the divorce by year end may not be the optimal solution.
Your retirement accounts, such as 401ks, are typically safe in bankruptcy and cannot be used to pay creditors. Traditional IRAs and Roth IRAs are protected up to a limit (currently more than $1 million). However, a U.S. Circuit Bankruptcy Court of Appeals recently ruled that when retirement assets are divided in a property settlement in a divorce, these assets are not protected from creditors. The Court’s opinion stated that the exemption from bankruptcy is limited to the individuals who create and contribute funds to the retirement accounts. This article summarizes the Court’s ruling.