Alimony has always been a difficult topic in divorce proceedings. The new tax reform legislation that was signed at the end of 2017 further complicates matters. Under the Tax Cuts and Jobs Act, alimony will no longer be deductible for those couples who divorce after December 31, 2018. This brings additional challenges to those mediating divorce and to couples who want to divorce but now question whether it is financially feasible.
Alimony is deductible under existing tax law
Existing tax law allows for alimony payments to be deducted by the spouse paying the alimony. The recipient of the alimony declares the alimony as taxable income.
Alimony under the Tax Cuts and Jobs Act
The new Republican tax reform legislation signed by Congress late last year, the Tax Cuts and Jobs Act, abolishes the alimony deduction for divorces that are finalized after December 31, 2018. The repeal of the alimony deduction does not apply to anyone who is currently paying alimony or who begins paying alimony before the December 31, 2018 deadline.
Financial impact of new tax law
The Internal Revenue Service (IRS) reports that approximately 600,000 Americans claimed the alimony deduction on their federal income tax returns in 2015. Eliminating the alimony deduction makes divorce financially difficult for many couples, particularly those that are in a lower income bracket. Couples that do not wish to remain married may be forced to do so out of sheer financial necessity.
Tax benefits can no longer be used as a mediation tool
Mediating a divorce can be quite challenging. Under the old tax code, the tax savings offered in the alimony deduction often facilitated negotiation between the two partners. Without that tax benefit, it may be more difficult to come to any sort of resolution on the many issues that must be tackled as part of the divorce process.
Uncertainty regarding the new tax law
While the new repeal of the alimony deduction is effective in divorces that are finalized after December 31, 2018, it is unclear whether existing alimony agreements that are changed in 2019 would be subject to the new tax code.
Experienced divorce attorneys navigate the new tax code
The new tax reform legislation raises many questions regarding divorce and the financial ramifications from the repeal of the alimony deduction. Divorce can be stressful enough; confusion over the financial implications only exacerbates matters. Let us help. The divorce attorneys at Lomurro Law are experienced and knowledgeable in all areas of family law, skillfully navigating every aspect of the divorce process, including addressing the recent changes to tax law. We are here to answer your questions, address your concerns, and guide you through the divorce process for the best possible outcome. Contact a member of our team today at Call or online to schedule a confidential consultation.