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Tax changes could complicate divorce matters for older adults

It's not unusual for divorcing couples in Texas to fight over the house and possessions. However, for adults age 50 and over calling it quits, another common point of contention is retirement savings. It's even more important to pay attention to such assets because of changes mandated by the Tax Cuts and Jobs Acts that will fully take effect in 2019. The most noticeable change pertaining to end of marriage issues is with alimony. These spousal support payments will no longer be tax deductible for the paying spouse, and the receiving spouse won't be able to claim payments as income.

The alimony issue may have some older couples rushing to untie the knot. However, a more pressing concern for divorcing adults near the retirement age is where the money from the settlement will come from. While the house may be sought-after because of sentimental attachment, some older individuals might be able to better protect their nest egg by selling it and putting the proceeds into a retirement account.

The tax law also changes capital gains tax rates. Therefore, a brokerage account with a significant face value may end up being worth less after taxes are deducted. Older couples are also advised to be cautious with IRA, 401(k) and Roth assets. Because of the way tax distributions are handled, a Roth account that's the same amount as an IRA or 401(k) would be worth more since taxes are already paid on the Roth account. The valuation of private businesses is also different under the new tax law although higher cash flow from corporate tax breaks may not be immediately evident.

With a gray divorce where retirement assets are a top concern, a lawyer may suggest that a client who owns a business have its value assessed to minimize the risk of certain losses. An attorney may be able to help secure a legal order for pension asset distributions because of the potential for significant tax penalties. Strategic negotiations might also protect some retirement assets post-divorce. Such efforts could be even more beneficial for individuals not yet eligible for Medicare and Social Security.

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