The impact of the new tax law on divorcing couples

A provision in the tax reform bill signed into law this month will have a significant impact on alimony for couples whose divorces are finalized in 2019 and beyond. That’s because alimony will no longer be tax deductible for those who pay it and can no longer be claimed as taxable income by recipients

Those who support the changes say that making alimony a nonissue when it comes to taxes, just as child support currently is, removes the tax advantages for divorced people that married people aren’t eligible for.

The House Ways and Means Committee, which has responsibility for tax law, said, “A divorced couple can often achieve a better tax result for payments between them than a married couple can.” The committee described the current tax rules around alimony as a “divorce subsidy.” As one divorce attorney notes, however, “I’ve never heard a couple say that they’re getting divorced for tax reasons.”

Those against the changes, including family law attorneys and women’s advocacy groups, say that they ultimately hurt alimony recipients who rely on these funds as they get their lives on track after divorce. Some 98 percent of these recipients are women, according to the Census Bureau.

Divorce attorneys predict that alimony negotiations will become more drawn-out and conflict-ridden, since those ordered to pay alimony won’t be able to count on what is often a significant tax benefit — easily thousands of dollars annually. The current system, experts say, puts more money in the pockets of both former spouses.

Attorneys fear that spouses with significant amounts of money will work to pay as little alimony as possible to their ex-spouses who have much lower (if any) income just after divorce. One divorce attorney predicts an overall average loss of 10 to 15 percent by recipients.

As one person who currently is able to deduct $5,000 each year for his alimony payments says, “The person actually getting the money should be the one who pays taxes on it.” That will no longer be the case under the new tax law.

Those wishing to avoid being impacted by the changes will need to have their agreements in place within the next year. Arizona family law attorneys can provide guidance and information regarding the potential impact to your individual financial situation if your divorce proceedings continue beyond Dec. 31, 2018.

Source: CBS News, “GOP tax overhaul: How it would alter alimony,” Dec. 22, 2017