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The new tax law has big implications for alimony payments

Many divorce decrees require one spouse to pay spousal support, or alimony, to the other. For the past 75 years, alimony payments were tax deductible. This was a boon for spouses who were responsible for making payments, as it considerably lightened their financial burden.

However, the recent tax overhaul passed by the Trump administration will have dramatically different implications for alimony payments. Under the new law, the spouse who provides alimony will no longer be able to deduct it from their tax return. This could be a major challenge for future divorce settlements that involve spousal support.

The new tax law and alimony payments

Under the current law, the spouse who receives alimony is required to declare it as taxable income, while the spouse who pays alimony is allowed to deduct the it from their returns. It is an arrangement that benefits both parties, but it will only be around for one more year.

The Tax Cuts and Jobs Act did away with several tax deductions, including the deduction for alimony. As of next year, the spouse who receives alimony payments will no longer have them taxed. The spouse who sends alimony will owe income tax on it. The new rule will affect any divorces that are finalized after Jan. 1, 2019.

The effect for divorcing couples

Although couples whose divorces go into effect before 2019 will not be affected, millions of other American couples will experience the effects of the new alimony provisions of the tax overhaul. Alimony negotiations, already one of the most contentious aspects of a divorce, are likely to get even tougher as couples push and pull for more or less support. There may also be less overall spousal support, since a greater portion of the payment will go to taxes. Many couples are rushing to meet with divorce attorneys in order to file for divorce before the 2019 deadline and qualify for the deduction.

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  • Divorce And Financial Issues