Much has been said about the new tax law passed through Congress and signed by President Donald Trump in December, both positive and negative. One aspect that seems to be affected and could impact the next year is how the law changes the taxes associated with alimony.
Under the new tax law, alimony payments will no longer be considered tax-deductible income for those who pay alimony. Those who receive alimony, however, will be able to deduct those payments from their taxes. Under previous law, the inverse was true.
Congress’s rationale for making this change was to make alimony payments consistent under tax law with child support payments. It also is a revenue generator for the government, as the Internal Revenue Service nets less under the current system since the spouse making payments and deducting them from taxes is likely in a higher tax bracket than the recipient spouse.
Alimony changes hit Jan. 1, 2019
This change does not go into effect until 2019. As a result, there is an expectation that high-earning spouses will want to rush through divorce proceedings in 2018 to ensure the tax deduction is still applicable to their alimony payments. On the flip side, dependent spouses may want to draw out proceedings into the new year so they won’t have to pay taxes on their payments.
Those who are considering a divorce should be prepared for a possibly more contentious process than it may have otherwise been, knowing that whatever position you are in as it pertains to alimony, you can advocate to have the financial makeup you need after a divorce.