Shouldn’t This Be In People Magazine Instead?

Back in 1788, George Washington turned down his chance to become King of the new United States of America. Maybe that’s why the closest thing we have to a royal family right now — at least, as far as supermarket tabloids are concerned — is the Kardashians. While the family redefines the concept of “famous for being famous,” they’ve managed to parlay that fame into more than $2 billion of wealth. (If you’re like many people, hearing that fact may make you want to punch a wall so hard that whoever pulls out your arm will be crowned the next King of England.)

Kim Kardashian grew up affluent as the daughter of attorney Robert Kardashian, best known for helping walk O.J. Simpson free from murder charges. (In fact, O.J. is Kim’s godfather.) She first tasted notoriety as Paris Hilton’s friend and stylist. But soon after, she pioneered leveraging a sex tape as a publicity stunt, and it was off to the races. Since then, Kim has launched beauty and fragrance lines and parlayed her social media following into an estimated $780 million fortune.

Kim’s romantic history starts with a brief starter marriage at age 19. Then there were 72 days of wedded bliss with NBA player Kris Humphries, which some skeptics dismissed as a publicity stunt. It looked like she found the real deal when she married rapper Kanye West in a “blizzard of celebrity.” The pair have four children, with the obligatory celebrity offspring names (North, Saint, Chicago, and Psalm). Architectural Digest recently invited readers into their home, which Kanye described as a “futuristic Belgian monastery.”

But Kanye has struggled with mental health issues, and the marriage has been shaky for some time. And so it was no surprise when Kim announced last week that she was filing for divorce. Like everything else in her life, it’s sure to cause a frenzy on TMZ and Entertainment Tonight. But there’s one place it won’t cause a frenzy, and that’s at the IRS.

Up until 2017, the IRS was actually in the business of helping couples untie the knot. How? Divorcing spouses could swap property between themselves with no tax consequences. This means, in the traditional example, that one spouse can keep the house for the kids to grow up in without paying any tax on the appreciation to date. And alimony rules let the spouse with the higher income paying it shift the tax on that income to the spouse with the lower income receiving it.

Today, property transfers “incident to divorce” are still tax-free. But the Tax Cuts and Jobs Act of 2017 eliminated the alimony deduction for separation agreements effective after December 31 of that year. And child support has always been nontaxable and nondeductible.

Those rules were always most valuable in cases where one spouse brought more money into the marriage than the other. (Of course, sometimes that’s exactly why people got hitched in the first place — see, for example, Playmate Anna Nicole Smith marrying an 89-year-old billionaire. But that’s a story for another day.) Kim and Kanye are both rich enough in their own right that there shouldn’t be much financial connection after the split. The gossips at the IRS will have to look somewhere else for celebrity stories that keep them busy.

We usually take this column as an opportunity to remind you that every financial decision you make has at least some tax consequence. This one has less than you might think. But it’s still important to call us to make sure you’re taking advantage of every break you’re entitled to!