Divorce could get more complicated with new tax law
The new tax law could leave many people scrambling for divorce due to the elimination of the alimony deduction.
Tax reform law is not often cited as a cause for divorce. However, as Politico recently reported, the new federal tax bill passed on Capitol Hill and signed into law by President Trump could have plenty of people scrambling for divorce before the end of 2018. The reason is because buried in the new tax law is a change that could affect many divorces that granted after December 31, 2018. After that date, divorcing spouses will no longer be able to deduct their spousal maintenance payments on their federal taxes and spousal maintenance recipients will no longer be required to pay taxes on those payments.
What will change next year?
Under current federal tax law, spousal maintenance payments are tax deductible while recipients of those payments are required to pay taxes on them. With the new tax law, called the Tax Cuts and Jobs Act, spousal maintenance payments will no longer be deductible for payors and no longer taxable for recipients for all divorces granted on and/or after January 1, 2019.
That means that those who want to take advantage of the tax break will need to be divorced before the end of the year. While it is extremely unlikely (one would hope) that anybody would get divorced just to take advantage of a tax deduction, for those who have already made up their minds about getting a divorce then the end-of-year deadline could provide motivation to move the process along a bit faster.
Why does the change matter?
The elimination of the spousal maintenance tax deduction is a pretty big deal for many people who pay or receive spousal maintenance. As CNBC reports, the deduction has allowed higher-earning spouses to be more generous with how much money they are willing to offer for spousal maintenance payments since they know they will get a large portion of those payments back come tax time.
The end of the deduction, however, ends up hurting both payors and recipients. Payors of spousal maintenance obviously get hurt because they no longer enjoy a large tax break. Recipients, meanwhile, will also likely see less money on the table for spousal maintenance. While recipients will no longer have to pay taxes on payments, that tax break will likely be less than the deduction that payors currently enjoy since payors are usually in a higher tax bracket than recipients. As a result, payors are likely to be more keen to negotiate lower payments that will more than negate the benefit recipients would otherwise receive through no longer having to pay taxes on spousal maintenance.
Family law assistance
Divorces could become more complicated with the above tax changes and those changes are just one more reminder of why it is so important to seek out professional advice when considering getting divorced. An experienced family law attorney can help clients throughout the divorce process, including but not limited to negotiating a settlement that is financially beneficial.
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