Exploring the new provisions of the Tax Code regarding the coming nondeductibility of alimony
In all the news about tax cuts in the recent federal tax reform bill, most people have not heard about an earthshattering change in the family-law world poised to take effect on January 1, 2019. For divorces finalized after December 31, 2018, ex-spouses who pay alimony to support their formerly better halves will no longer be able to take alimony paid as a deduction against income on their federal tax returns.
In addition, alimony recipients will no longer have to pay taxes on those funds.
Many speculate that this change will have a negative impact on future divorce negotiations because higher-earning spouses will not be as inclined to agree to generous alimony provisions. After all, without the break on their tax returns of alimony deductions, their taxable income will be higher, which may even be push them into higher tax brackets.
When alimony ends up in court, the trial may end up being more expensive because potential payors have more incentive to vigorously contest the issue.
Alimony has been deductible for 75 years and Americans have become accustomed to the deductibility of the family expense. It has been a family-friendly provision that has preserved more money for divorcing families to divide between the two new households. Because women still make up the majority of alimony recipients due to a high number of mothers still staying home to raise the children, women’s advocates are concerned that females and children will take a financial hit from the change.
The reason for the change? According to CNBC, the amendment will raise almost $7 billion in taxes in the next decade.
DO NOT DELAY
Any Floridian contemplating divorce should talk to an attorney immediately to understand what the change in the law could mean for his or her financial future. If the current law’s allowance of deductibility of alimony would benefit him or her individually or as a family unit after divorce, the lawyer can analyze the situation to determine whether the parties could act quickly enough to take advantage of the existing law.
If a settlement agreement or divorce can be finalized before January 1, 2019, the current law would apply to the arrangement. Therefore, do not delay in talking to legal counsel.