Another uneventful election year is in the books. Well, almost uneventful . . . In reality, it was (is?) as contentious a political battle as we have seen in a very long time. In many ways, the nation’s political divide is analogous to a common divorce theme – each party has completely disparate views and priorities on a variety of issues which can lead to some (ahem) “irreconcilable differences.” Perhaps for some of you out there, opposing political views within your household may even be a cause that leads to a divorce. Regardless of the reason for the divide within the household (remember, Massachusetts is a “no-fault” divorce state after all), it is important to follow what happens next in the political process, as divorce and politics are always going to be intertwined, and no time is that principle more apparent than after an election year.
Without getting too deep into a fifth grade civics lesson, the three branches of government (Executive, Legislative, and Judiciary) on both the state and federal levels create, implement, interpret, and contextualize the laws and policies which have a direct and indirect impact on the divorce process. Divorce is fundamentally governed by each state’s general written laws, which will vary from state to state on a number of issues. Nevertheless, judicial interpretation of those laws on both a state and federal level, along with certain federal legislation and policies, all contribute to the expansive body of “divorce and family law” and comprise the various issues all parties to a divorce and divorce attorneys must consider in order to reach a resolution.
Keeping with the election theme, if you polled divorce attorneys across the country and asked them what has been the biggest change to divorce law in the past few years (excluding the chaos created by the current pandemic), the majority would likely vote for the sweeping overhaul to the federal tax law under the Tax Cuts and Jobs Act of 2017 (the “TCJA”). The TCJA was a major policy initiative from the Trump administration and included provisions making the payment of alimony between former spouses a tax-neutral transaction. For most observers familiar with the TCJA, the alimony change was merely a footnote, if it even registered on their radar; but for divorce attorneys and individuals involved in the divorce process with alimony consequences, this was a significant upheaval of the law.
Prior to the TCJA, alimony was deductible from the gross income of the former spouse paying alimony, thereby reducing the federal tax liabilities for the “payor”; and it was includible in the gross income of the former spouse receiving alimony, who was generally taxed at a much lower tax rate anyway. Collectively, the pre-TCJA tax treatment of alimony payments often resulted intangible tax savings for the parties, and, therefore, more available after-tax income for both parties – a rare “win-win” scenario in the divorce process. The tax deductibility aspect of alimony used to allow for some creative solutions in structuring final separation agreements when alimony was on the table, and even made the notion of paying alimony somewhat palatable for the “payor.” As a result, this change to the federal tax law, which applied to divorce or separation agreements executed after December 31, 2018, led to a real urgency for divorcing parties with alimony consequences to finalize separation agreements in advance of the deadline. The change also created widespread confusion for divorce attorneys, because the alimony section of the TCJA was untested in appellate courts or clarified by the I.R.S., and state legislation struggled to keep up with and remain consistent with the new tax-neutral treatment of alimony on a federal level.
It remains to be seen what types of changes the next few years of the political process will bring to the ever-changing body of divorce and family law. Divorce and family law is one of the most fluid areas of law, and the divorce process is the one legal process that impacts every facet of the lives of the individuals going through it. Because of these dynamics, changes to state and federal laws and policies (through new legislation and/or judicial interpretation) on a variety of topics, including real estate and other financial assets, income, taxes, health insurance, etc., can have massive implications within the context of a divorce process.
Therefore, it is important for those going through a divorce to keep up with the proposed changes to laws and policies that may impact their divorce process. And if you do not like how the proposed changes will impact you, exercise your right to contact your elected representatives to express your frustrations, and then contact your divorce attorney to try and figure out the best strategic path forward.
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