Early this year, Congress made a change to the alimony tax deduction, essentially eliminating
the deduction for divorce agreements signed after December 31, 2018. That means getting
divorced in 2019 will be more expensive, for some. For others, it can mean a tremendous
We never want to encourage anyone to get a divorce, but if it’s already on the horizon and you simply haven’t taken the steps to make it official, you should strongly consider the timing of taking action. should do so before the end of the year to avoid paying thousands more in income taxes.
The Alimony Tax Deduction–What Is It?
Alimony is support money that one spouse pays to the other after a divorce. It is typically paid by the spouse who earns more money. Until the recent change, the alimony tax deduction was a federal tax deduction that made alimony tax deductible for the person paying it. At the same time, the spouse on the receiving end declared alimony as taxable income. Usually, this resulted in the parties paying less income taxes overall, and left them with more available funds post-divorce.
How It Works Under the New Law
The law eliminating alimony tax deduction was passed in December 2017, but doesn’t go into effect until December 31, 2018. Under the new law, for divorce judgments and maintenance orders entered after December 31, 2018, the payor of maintenance can no longer deduct those payments, and the recipient will no longer have to pay taxes on maintenance payments received.
Starting January 1, 2019, there is nothing you can do to change this, so timing is important. If you may have an obligation to pay maintenance to your spouse, those payments will cost you much more after 1/1/2019 – since you will lose the tax deductibility of those payments. On the other hand, if you may be entitled to receive maintenance, you may want to wait until after the start of the new year, since your maintenance payments will then be tax-free.
While it might seem nice to not have to claim alimony as income and receive support tax-free, but without a tax deduction chances are the spouse paying alimony will fight much harder to not have to pay, or to pay less, starting in 2019. They will be paying income tax on money they give away to support their ex-spouse–it’s a situation most people will not get into if they can help it. It’s also possible that judges may adjust alimony payments downwards, taking into consideration that the paying spouse cannot deduct support from their taxable income.
Divorce in 2018
Some experts have predicted a large increase in divorces in 2018 due to the alimony change and for couples on the brink of divorce, finalizing it in 2018 may make a lot of financial sense. One party saves money, and the other probably receives more going forward. Plus, there are few surprises. Under the current law, lawyers know how most judges will rule on alimony issues, and also have state alimony laws to follow. Settling divorce cases is relatively easy when the law has been the same for years. Going forward, divorce could become more complicated, fights over finances could be drawn out, and so far no one knows how judges will react.
If you are divorced before the end of 2018, the new law cannot change the way you are taxed. The only way that can change is if both parties agree to review alimony awards. Divorce can take time, so if you are in the early stages try to move forward in order to finalize before the end of the year. A divorce attorney who has your best interests in mind can help you through the process so both parties can come out with a divorce settlement that makes financial sense, and was worked through as painlessly as possible. Schiffman Family Law has been working one-on- one with clients for years, bringing personalized expertise to each case. Come in for a free one- hour consultation to talk through what the new alimony changes could mean for you and your family.