How the New Tax Law Might Affect Your Alimony Case
Alimony and Tax Law
Negotiations over alimony (or spousal support, as lawyers tend to call it) are already tough, but they may get even tougher thanks to the new tax law that Congress passed at the end of 2017. People who pay alimony will lose a valuable incentive, while alimony recipients appear to benefit — at least at first glance.
However, a closer look at the facts reveals a murkier truth. Read on to learn how this new law may affect your divorce case.
PLEASE BE ADVISED THAT THE ATTORNEYS AT MYERS LAW FIRM, PLLC ARE NOT TAX LAWYERS AND THIS POST SHOULD NOT BE CONSIDERED AS PROVIDING TAX ADVICE OR LEGAL ADVICE ABOUT TAXES. THIS POST IS PROVIDING A GENERAL OVERVIEW OF HOW THE TAX LAW CHANGES MAY AFFECT SPOUSAL SUPPORT. FOR GUIDANCE ON YOUR SPECIFIC SITUATION, PLEASE CONSULT YOUR CPA.
No Deductions for Alimony Payers, No Taxes for Alimony Recipients
While laws regarding alimony vary widely from state to state, the way the IRS treats alimony for tax purposes has remained the same for the past 75 years: people who pay alimony get to deduct it from their taxes while people who receive alimony pay taxes on it.
Congress turned all this upside-down when they passed President Trump’s signature tax legislation, the Tax Cuts and Jobs Act, in December 2017. Once the new law takes effect in 2019, alimony will no longer be tax-deductible for the payer, and those who receive alimony will no longer have to pay taxes on it.
While this may sound like a major win for alimony recipients, it’s not that simple. Without the tax deduction, spouses who pay alimony will have less available income from which to pay, and many recipients may end up getting less money overall. In the end, the new tax law might prove to be a lose-lose situation for both spouses in an alimony case.
Note that the new law only applies to divorces finalized or modified after 2018. If your spousal support case is resolved during 2018, the new law won’t apply. However, the law specifically allows ex-spouses to modify an existing divorce agreement to adopt the new rule once it goes into effect. In other words, if you modify an agreement entered prior to 2019, you and your ex can choose whether you want the old law or the new law to apply to your situation, but only if you both agree.
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How Will the New Tax Law Affect My Divorce Case?
One possible consequence of the new law is that negotiations over alimony may become tougher to resolve. In the past, the tax deduction for alimony often served to “soften the blow” for the spouse who agreed to pay alimony. Now, the new law has eliminated that silver lining, which means spouses may fight harder against spousal support requests and may be more willing to go to court rather than hash things out at the negotiating table.
Alimony negotiations through the end of 2018 could prove especially heated. People who expect to pay spousal support may rush to finalize their divorces before the end of 2018 to avoid dealing with the new tax rules. In some cases, alimony payers may settle for less favorable alimony terms just so they can conclude negotiations and avoid the tax hit from the new law.
On the other hand, people who expect to receive alimony may try to make sure negotiations drag on until next year since doing so will allow them to avoid paying taxes on all future alimony payments. Meanwhile, alimony recipients who expect to receive less due to the loss of available income from the payer may agree to speed things along, which could result in hasty divorces that leave one or both parties unhappy.
If you’re concerned about how the new tax law will affect your spousal support case, you should contact an experienced divorce lawyer right away. An attorney should be able to clear up any questions and advise you about your best course of action in light of the new law.
Myers Law Firm Can Help with Alimony in North Carolina
At Myers Law Firm, we understand the end of a marriage is never an easy time for either spouse, so we approach every case with compassion and understanding to search for solutions. While we excel at respectful negotiation and will work to find common ground with the other side, we’re prepared to stand up in court and fight for your rights with an aggressive approach if that’s what it takes.
The attorneys at Myers Law Firm have experience handling all the major family law issues that surround the end of a marriage, including alimony, child custody, child support, property division, and divorce. We’re here if you need help. To get in touch with us, call our offices at 888-376-2889 or fill out our online contact form.
Bischoff, B. (2018, January 26). New tax law eliminates alimony deductions— but not for everybody. MarketWatch. Retrieved from https://www.marketwatch.com/story/new-tax-law-eliminates-alimony-deductions-but-not-for-everybody-2018-01-23
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.