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The New Tax Bill & Alimony

It’s a new year and we thought we would start it off with an article about something that’s been all over the news for weeks – the new tax bill.  Some love it.  Some hate it.  Some have no idea that there is a new tax bill.  One thing is for sure: there will be changes.  How will this new tax bill affect you if you are paying alimony?

What’s It Like Now?

Under the former tax bill, and for a short period of time moving forward, the payee (the person that receives the alimony) was required to claim these funds on his/her tax return as income. Potentially, this money required payment of taxes by the payee (albeit at a lower tax bracket).  On the other hand, the payor had the ability to deduct the alimony from his/her income.  Potentially, this money reduced the payment of taxes by the payor.  In English?  If husband paid alimony to wife, wife had to claim the payments as income on her tax return.  Husband was able to deduct these payments from income on his tax return.

The mandate to pay taxes on alimony (for payee) and/or to deduct payments of alimony (for payor) created obligations for each party that each may or may not have liked, but had to consider when negotiating terms of divorce.  It also brought the ability to negotiate various scenarios that could benefit the “family” as a whole.  For example, instead of payor paying child support (that payee does not have to claim as income) at a lower amount, payee might choose to pay alimony at a higher amount. Here, the “family unit” would pay less taxes overall and the payee would receive more money.

What Is The New Tax Bill?

First, do not panic.  If you already have a (final) order for alimony, you are not effected by this change in the tax law. You are “grandfathered” in.  As a payee, you remain required to claim the alimony as income.  As a payor, you  can still benefit from these deductions.

Second, the change does not go into effect immediately.  If you have a temporary order, are in the midst of litigation and/or are just getting started with your divorce action, you need to be aware of the timeline for the change in the tax treatment of alimony.  If you sign an Agreement and/or obtain a (final) Order for alimony before the end of 2018, you will be able to benefit from the alimony deductions. Simply stated:

  • If your order pre-dates December 31, 2018, you are required to claim alimony as income as a payee and permitted to deduct alimony payments as income as a payor.
  • If your order is on January 1, 2019 or thereafter, alimony is no longer considered income for a payee and is not deductible from income for a payor.

What If I Am Considering Divorce?

If you are in the midst of a divorce or considering divorce, contact me.  I am ready to help you plan for the new tax law and address all of your concerns.  I begin with a free phone consultation.  If it seems that I am well suited to your case, we can then meet and further discuss the case.  Contact me to get the process started.

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