How Tax Law Affects Alimony
MAJOR changes are coming regarding on how alimony payments will be handled under the new tax code. The changes to the tax code are part of The Tax Cuts and Jobs Act (TCJA) of 2017 that is surely to affect both payors and payees. Parties to a divorce are encouraged to expedite their divorce proceedings so that they can finalize the divorce before the end of this year-December 31, 2018. Payor’s of alimony will stand to lose the most as they will see their alimony deductions eliminated if they miss the deadline. It is believed that an approved agreement between the parties or a court judgment providing for alimony and alimony deduction prior to the effective date of the act (January 1, 2019) will still be governed by the current tax laws.
Under the current tax code, the payor is allowed to deduct their alimony payments on their income tax returns. This provided a savings on their tax liability. While alimony payments are treated as taxable income to the payee spouse, they are often at a lower tax bracket. As a consequence, the payee spouse may also offer suffer the effects of this change in the law as there is the potential for them to receive or be awarded less money. In many cases the payor and payee, along with their attorney’s, would negotiate for a greater alimony payment where the payments were deductible. We can see that position changing. There is no change for existing divorces where alimony is already being paid by agreement or prior court order.
This change-which is sure to hurt divorcing parties and their families is seen as a major victory for this Administration and the Congress. Great. Compare that to how families will be hurt by this change in the tax code
A burning question is this- how will judges’ deal with this issue now that payors can longer will deduct their payments from their tax returns? Alimony is still based on the payors ability to pay and the payees need for support. The ability to pay seems to have been lessened considerably.