New tax bill to result in alimony deduction tax changes

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The new tax bill recently signed by President Donald Trump will soon have a huge impact on alimony payments.

One of the most contested issues in a divorce case, alimony payments are separate from child support, but are usually provided to a spouse earning less income. There is no other way to put it: The spouse paying the alimony (the payor) will forever despise that monthly alimony disbursement.

Most people are unaware that those alimony payments are tax deductible, and this may come as a welcome surprise to the payor. Of course, the receiving spouse (the payee) always had to pay taxes on any support he or she received (yes, husbands sometimes do receive alimony). However, the new tax bill will change this for any new divorce case filed after Dec. 31, 2018.

As of right now, if a divorce case is finalized prior to Dec. 31, 2018, a payor can deduct from his or her taxes the alimony support ordered by a judge or agreed to by the parties. So, when the payor spouse files for his or her taxes, that spouse may seek those alimony payments as tax deductible from his or her total income. (It is imperative to know that the only support that may be deductible is alimony, not child support.)

However, any party filing an original divorce petition after Dec. 31, 2018, will no longer be able to have his/her alimony payments tax deductible. This will apparently add close to $6 billion in tax revenue over time, a statistic I recently learned in an online tax seminar. Additionally, the payee will no longer have to pay a tax on the alimony he or she receives.

As a family law attorney, when I first read about the alimony deduction tax change, I will admit I was shocked to see that the change went through. But now that I had time to contemplate the change and hear other professional opinions about it, I will admit that a future payor should not think that they are going into their divorce, post-2018, negatively impacted by the new tax law.

In fact, I would guess that post-2018 original divorce cases might be even more difficult on a family law attorney to settle outside the courtroom. For example, under the current alimony deduction, let’s say a payor with a yearly income of $200,000 agreed to pay $5,000 a month in alimony or $60,000 a year. The payor would then owe an income tax on $140,000, and the payee would pay a tax on the $60,000 received in alimony.

Even though this is an example, it is a good assumption that the payor most likely agreed to pay $5,000 a month in alimony knowing about the tax deduction. However, this will no longer be an option to that payor should the divorce be filed after Dec. 31, 2018. The new alimony tax rule could affect modifying your alimony in 2019, if you do not have the correct language in the modified agreement or order.

So, take my example and apply it to the new tax law that will be in effect for 2019. Would that payor making $200,000 a year now agree to pay $60,000 a year to his or her ex-spouse? Remember that payor will have to pay a tax on $200,000 as opposed to $140,000. Will the payor also agree to pay $5,000 a month knowing that his or her spouse will not pay taxes on the alimony?

My answer, of course, is that it depends on a multitude of other factors, but it is interesting to think, no matter which side you are on, one thing is for certain: This December 2018 will be a busy month for divorce lawyers trying to beat the clock prior to midnight Jan. 1, 2019.

Joseph Alvarez is an associate attorney at Zisser Law, where he specializes in criminal and marital law. 

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