How Does the New Tax Code Affect Alimony?
The massive tax overhaul that was recently signed into law is the most comprehensive reworking of the tax code in three decades. The sweeping changes are broad, and will undoubtedly affect millions of Americans on many levels. One of the impacts that will be felt by couples across the country is the provisions regarding divorce, specifically how alimony will be taxed.
The new tax bill has drastically changed how alimony is taxed, and this is sure to play a lead role in how these payments are negotiated during divorce proceedings. Under the previous tax law, alimony payments were tax-deductible by the payer, and were counted as income to the recipient of the alimony payments. This deduction is being repealed in the new version of the tax law, and being shifted to the recipient.
How will this affect couples filing for divorce in 2018?
Well, as long the divorce proceedings are completed by December 31st, the alimony deduction repeal will NOT impact alimony payments. But with the change taking place in 2019, the incentive to draw out proceedings and make what is potentially an already tense negotiation even tougher to mediate and resolve in a timely manner.
The impact is also expected to be larger on lower income families. The switch to taxation on the individual who will be receiving alimony will mean that the income they were expecting from alimony payments will go down, which can lead to hardships for those who rely on this money to supplement their lifestyles.
Just how much this bill will affect the divorce process is still to be determined, but expect to see a change in tactics from couples seeking resolution as well as potentially drawn-out divorce proceedings.
Heather Quick, CEO of the Quick Law Group
For more information on what the new tax bill means for divorcing couples, contact The Quick Law Group to schedule a consultation.