New Tax Laws Impact Alimony

The new U.S. tax law, known as the Tax Cuts and Jobs Act, was approved by Congress on December 20, 2017 and went into effect in January 2018. The focus of the media coverage regarding the tax reforms so far has been related to tax brackets, tax rates and the potential effect of the new law on net income. If you are involved in divorce proceedings or thinking about divorcing your spouse, you also need to know that the new tax laws will significantly change the way alimony is treated on your tax returns.

Under the current laws, the recipient of alimony must report the payments as “income.” In contrast, those who pay alimony to an ex-spouse receive a tax deduction. These tax factors have been in place for more than 70 years. Beginning on January 1, 2019, the tax deductions for payment of alimony and the reportable income related to the receipt of alimony will no longer exist. Section 11051 of the newly adopted tax code abolishes the provisions that had allowed alimony to be taxable for the recipient or deductible for the payor.

Since these provisions regarding taxes and alimony will be eliminated in 2019, individuals who have been considering divorce with the expectation that alimony payments will be required in the final court order should initiate the divorce process now. It can be anticipated that the changes will affect divorce negotiations and urgency to finalize court orders this year. As long as the divorce decree is issued by December 31, 2018, the taxability/deductibility remains the same as it currently exists. It can be expected that the new tax laws will change the way that divorce agreements are negotiated or ultimately settled this year.

For those who pay alimony, there will be a greater motivation to finish a divorce proceeding by the end of 2018 to take advantage of current tax deductions. Likewise, the new tax laws will make a dependent spouse inclined to request greater alimony for a longer period of time. The spouse with higher wages will be encouraged to offer alimony to the spouse who is in need of support. One thing is clear – married couples should consider initiating divorce proceedings soon if it is expected that the process will be completed by the end of the year. In Pennsylvania, the mandatory 90-day waiting period after the separation of the parties or filing of a divorce complaint should motivate couples worried about the effects of this new tax law to start the process right away.

If you are interested in learning more consider contacting an experienced family law attorney at The Mazza Law Group now for consultation or representation.

New Tax Laws Impact Alimony was last modified: February 27th, 2018 by Judith Homan