The New Tax Laws & Your Alimony – How Will You Be Affected?

If you are beginning the divorce process, there are many questions you may have for your divorce attorney regarding your finances. You many find yourself in a situation where you could be paying your former spouse alimony, or you could be the individual receiving alimony from your ex-spouse. In 2017, the GOP-run legislature enacted new tax laws that will greatly impact alimony payments and separation agreements. This article will explain to you some of the impacts the bill will have on your divorce and the financial implications you may face.

First, it is important to understand the fundamentals of alimony. When divorcing, a former spouse can ask for alimony, a form of financial maintenance to assist the other spouse in becoming financially stable once the marriage has ended. There are many factors that are considering in order to determine alimony payments. These include the length of the marriage, health of the parties, socioeconomic status of the ex-spouses, financial contributions to the marriage, age, education, profession, and a variety of other factors. Depending on the situation, alimony payments can last for a certain duration or an extended period of time. According to an IRS report, in 2015, over $12 billion dollars of alimony was paid in the United States. 

First–and the most important thing to know–is that alimony payments will no longer be tax deductible for any separation or divorce agreement signed after 2018. As the alimony will be treated like child support for new alimony recipients, these payments will not be reported as income. However, if alimony payments are already being made prior to the end of 2018, there will still be tax deductions for these payments.

 Also, if these payments are already in effect, you will not be affected by any of the new tax laws to be enacted in 2019. Any prior divorce agreements will remain valid, and the IRS will uphold prior alimony agreements.  However, if agreements are modified in the future, they must comply with the new tax code.

The new tax bill likely will impact both you and your ex, as alimony payments are generally given to those in a different socioeconomic status than their ex-spouse. For example, let’s assume you are the payor, and you are now receiving a tax deduction for your payments to your ex-spouse in a lower tax bracket than you are. If you were to divorce in 2019, as the payor, you may have a better chance of no longer paying as much, since there would be no tax deduction. Due to the lack of deductions, monthly payments would inevitably be more expensive. These deductions have been so important because if a former spouse is having difficulty with payments, they were given a bit of a break due to the deduction. If tax relief is given to the payor as part of the divorce agreement, this could be one option to alleviate some of the stress that these new tax laws bring.  

It is likely that many will not be able to afford as much in alimony, as these new tax laws are a deterrent to paying as much alimony as possible. Many have assumed that divorce proceedings will increase this year, as some people attempt to get ahead of the new tax laws. If both parties agree on these modifications, their old alimony agreement can be updated to conform with the new tax code. Since there will be no further tax deductions due to alimony, many payers will be rushing to divorce attorneys to deal with these agreements as soon as possible. It is inevitable that finances in a divorce could become a lot more cumbersome and messy.

If you are going through a divorce and are concerned about how the new tax laws will impact your current or future alimony payments, please contact a family law attorney to discuss your options. If you need more information about family law or this issue specifically, please feel free to schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form and we will respond to your phone call or submission promptly.