Alimony and The New Tax Code. "It’s Complicated".
Alimony and the new Tax Code
The alimony deduction that has been in the tax code since 1942 is about to change in 2019. The deadline for newly divorced spouses to enter into agreements that include tax-deductible alimony is December 31, 2018. The questions on everyone mind is: “Should I hurry up and get divorced in 2018 or slow down and see how the tax implications work out for alimony”? It’s complicated because the answer depends on whether you are the payer or the recipient.
If you are the payer spouse you could potentially suffer a much higher financial burden, so you might want to try to rush your divorce through so you can secure your deduction. However if you are the alimony-seeking spouse you may have significant incentive to delay the divorce settlement in order to get the tax benefit in 2019
The Current Tax Law for Alimony and Divorce Any alimony payments paid to a former spouse is treated as a tax deduction for the payer and income to the recipient.
What it means for the payer? If you were payer, you received an above-the-line deduction, which decreased your taxable income dollar-for-dollar by the amount paid.
What it means for the recipient? If you collect alimony payments it is considered as income, thereby increasing your taxable income by the amount received.
The New Tax Law for Alimony and Divorce After Dec. 31, 2018, spouses paying alimony won’t be able to take a deduction while spouses receiving alimony will no longer have to report it as income.
What it means for the payer? Your deduction is eliminated which could push you into a higher tax bracket.
What it means for the recipient?
You will no longer have to pay taxes on your alimony.
What could go wrong?
Just about everything. If alimony is no longer deductible, the ability of an ex-spouse to pay it may be limited, due to other fixed expenses, such as child support payments, and education expenses for children. Some people are predicting a increase in divorces this year as spouses paying alimony seek to take advantage of the deduction before it is eliminated. All of this is sure to make settlement discussions more stressful, and cause more fights between clients— and tension between attorneys.
So what can you do to reach a successful resolution? A low-conflict divorce strategy is key to achieving a final judgment before 2019. If you are more interested in “A Kinder Approach To Life's Legal Issues” I invite you to explore around my website Van Tassel Law to learn more about alternative dispute resolutions, that are kinder, easier, less costly alternative ways to divorce including meditation and collaborative process. These are family-friendly processes of negotiation that strive for a win-win resolution.
Working together in an atmosphere of respect and dignity, we will craft a mutually satisfying outcome for both you and your spouse in an informal though structured setting at your pace, with your privacy insured. If necessary, I will refer you to educational programs, financial planners, accountants, real estate agents or therapists who will help you build your future and create your new family dynamic.
I encourage you to contact me for a free half-hour consultation to explore which alternative process is the right choice for you.