The New Tax Law And Its Impact On Alimony

For the past 75 years, there has been a tax deduction on the books for those who pay alimony. With Congress's recent passage of sweeping tax reforms, that deduction will become a thing of the past starting in 2019.

As the law stands now, the spouse who pays alimony can deduct the entire amount from his or her taxes. The spouse receiving the alimony must pay income taxes on the full amount. For any divorce or separation agreement, though, that is finalized after Dec. 31, 2018, the paying spouse will no longer be able to deduct it and the other spouse won't have to pay taxes on the alimony he or she receives.

Divorce experts are worried that these changes are going to make it harder to negotiate and will likely lead to fewer alimony awards. The way alimony is currently handled in terms of income taxes, according to some divorce attorneys, means that more money is available to divide between spouses.

For some people who pay alimony, the new tax laws could mean a new, higher tax bracket. The congressional Joint Committee on Taxation believes that getting rid of the deduction will mean an increase of about $6.9 billion over 10 years in new tax revenue.

One attorney believes that spouses who receive alimony will get 10 to 15 percent less under the new tax law. The House Ways and Means Committee labeled current deduction a "divorce subsidy." In addition, the Committee said that alimony and child support should be treated the same. Child support is neither deductible nor taxable.

If you are contemplating divorce, your attorney can explain more about how the new tax laws will affect alimony payments and what your legal options are moving forward.

Source: The Gazette, "Exes and taxes: How the tax overhaul will alter alimony," Jennifer Peltz, AP, Dec. 22, 2017