Some members of Congress may have voted for the changes in the treatment of alimony under tax law because they believed the current system gives tax advantages to divorced people -- particularly those paying alimony -- that married people don't get. However, divorce attorneys say that they're seeing an increase in clients seeking divorce so that they can have it finalized before the new regulations take effect in 2019.
One lawyer says, "The people who have been on the fence, now knowing the tax law is coming into effect [are taking] the plunge." Another lawyer who discussed the increase in calls to her firm says, "Clients who are even a little bit financially savvy have been asking about it."
The Impact of the Tax Reform Law on Those Paying Alimony
The changes to how alimony or spousal support will be handled by the Internal Revenue Service are part of the sweeping tax reform bill passed by Congress and signed by President Trump in December 2017. Currently, alimony is deductible for those who pay it. That can mean a significant tax deduction each year, particularly for people in higher tax brackets. That tax deduction has helped divorced spouses offset the financial burden of having to pay alimony.
For divorces finalized after Dec. 31, 2018, these payments won't be tax deductible. As one attorney says, when the changes take effect, "the payor's cost of paying alimony or spousal maintenance will be substantially higher." People who are already paying alimony or who divorce before year-end won't be impacted by the changes.
How Will Alimony Recipients Be Impacted
The changes will also impact the tax status of those receiving alimony. Currently, it is considered taxable income. Beginning in 2019, it won't be. All this means that couples going through a divorce this year may be at odds over whether to speed up the process or slow it down.
However, both spouses could benefit by finalizing their divorce in 2018. When alimony is no longer tax deductible, spouses ordered to pay it and their attorneys will likely fight to keep the payments as low as possible since they won't be offset by a tax deduction. Therefore, spouses who receive alimony may fare better under the current law.
It's essential for all people in the midst of divorce this year where spousal support is a factor discuss the changes to the law with their attorneys. An experienced divorce attorney can help you determine how the financial impact on you will differ based on when the settlement is finalized.
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