This last year was a busy year for our divorce firm, but it was busy for divorce attorneys across the country. The 2019 changes in the tax laws created a flurry of activity where spouses, especially high-net-worth spouses, tried to finalize their divorces before December 31, 2018.
Under the new tax laws, which went into effect on January 1, 2019, alimony (also known as spousal support and spousal maintenance) is no longer tax-deductible for the paying spouse, and it’s no longer counted as taxable income by the receiving spouse.
While this has a negative impact on all spouses, it hits wealthy paying spouses the hardest because they can no longer deduct spousal maintenance. For receiving spouses, a lot of them are having to take less since their former spouses no longer have the tax incentive.
Revising Your Estate Plan
Revise your estate planning documents. Assuming you have a will or trust, or both, remove your former spouseIf you were one of the wealthy individuals to finalize your divorce by December 31, 2018, or if you’re in the middle of divorce, it’s important to start thinking about revising your estate plan, and the sooner the better. Here are some of the key issues you need to start thinking about:
- Meet with an estate planning attorney, and give them a copy of your divorce agreement. Your estate planning lawyer needs to be aware of your divorce decree and obligations to your former spouse if you were to pass away.
- Update your power of attorney. If your power of attorney named your former spouse, you’ll want to revoke that. You should create a new power of attorney naming someone else, such as a relative, a trusted advisor, or a friend who can act on your behalf to handle your finances and assets.
- as the executor or trustee, and remove provisions bequeathing assets to your ex husband or wife. The goal is to ensure that your “ex” does not have any control over your estate after you die, and you don’t want him or her to receive any assets after your death.
- If your ex is unstable, rethink guardianship. If you have minor children and your former spouse is emotionally and physically healthy, he or she may be the ideal guardian for your children in your will. Even if you name someone else, he or she will most likely be the guardian of your minor children if something happens to you. However, if your former spouse is unfit because they are mentally ill, have a substance abuse problem, or committed domestic violence, you may want to name someone else other than your former spouse as the guardian of your children.
- Establish a trust for minor children. If you do not establish a trust for your minor children and your former spouse becomes their guardian, your ex will control your children’s finances until they reach the age of 18. Most of our clients do not want their former spouses controlling their children’s money. Our advice is to establish a revocable trust and select someone to be the trustee, who can control your children’s money in case you die.