Divorce compounds retirement risk - Seite 2

James Mahaney, a vice president in Prudential’s Strategic Initiatives unit, author of a companion paper to the NRRI study, agreed. Mahaney says that the Tax Reform and Jobs Act will likely make it much harder for divorced spouses to secure their financial futures, but notes that new planning opportunities have arisen as well. He recommends people who are divorcing or contemplating divorce consider some key financial issues such as:

• Alimony – Alimony has been tax-deductible to the spouse who pays it, typically the higher earner. The spouse receiving it must report it as taxable income. But that may be offset somewhat by the higher-earning spouse passing along some of their alimony tax savings to the lower-earning spouse. That all changes in 2019, when alimony is no longer tax-deductible for new divorces going forward. This is likely to result in lower alimony being paid due to the higher taxes the combined former spouses must now pay.
• Investments – After a divorce, individuals may find themselves in a lower tax bracket, which can be a benefit if they qualify for a 0 percent capital gains tax rate, making investing more affordable and rewarding.
• Home ownership – Many individuals, especially mothers of school-age children, often prefer to keep the marital home when divorcing. However, home ownership in high-tax states may become less attractive under the new tax law.
• Children and taxes – Although personal exemption deductions have been temporarily eliminated from the federal tax code, they have been replaced by child tax credits, which are more valuable than deductions. The credits reduce an individual’s tax burden on a dollar-for-dollar basis. Determining which parent can claim a child post-divorce may now be even more critical.
• Social Security – Lower-earning spouses planning to divorce and who have been married for at least 10 years may be eligible for a Social Security spousal benefit or survivor benefit that could exceed their own benefit. Those impacted should consider how their Social Security benefits can be integrated with annuities and other savings to generate adequate amounts of secure lifetime income.

“With so many factors to consider, it is more important than ever for divorcing couples to assess their financial plans and find opportunities to stretch their wealth and think about future income streams as they prepare for retirement,” Mahaney said. “This is especially important for women, who not only tend to be the lower earner, but also receive less alimony under the new tax law.”