Understanding How the New GOP Tax Law Affects Alimony

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understanding how trump's tax law affects alimony

If you have been paying attention, you already know the new sweeping changes made by the GOP’s tax law will have long-range effects throughout the economy for decades. One big change has divorce lawyers across the country on edge – the elimination of the alimony deduction. For over 75 years, the alimony deduction has been a strategic aspect of negotiations between divorcing couples. Going forward, however, this is now off the table.

What was the Alimony Deduction?

Under existing IRS rules (See Publication 504), alimony was generally treated as a deduction for the paying spouse. The recipient then paid tax on the money, just like all other income. This somewhat softened the impact of being forced to continue paying money to an ex-spouse.

Theories Behind an Alimony Deduction

The logic is pretty clear. A person is ordered to pay an ex-spouse a portion of his or her money, most often because the ex-spouse earns less money. The paying spouse is usually the one who makes more (aka “the breadwinner”). It can be a hard thing to accept that you have to continue paying an ex, long after you are divorced. The paying spouse is getting nothing out of the continued relationship, while the recipient is getting income. The tax deduction acknowledged the fact that the alimony payments are a total loss for the payer, as he or she is not receiving goods or services for the money paid. Here is what the new law means for married couples looking to get divorced after 2018.

Changes Took Effect on January 1, 2019

The new law does not take effect immediately. Instead, it will only apply to those who get divorced after December 31, 2018. So, those who are considering divorce in 2018 may want to consider doing so quickly, as the law will not apply to those already paying alimony.

Settlement Negotiations Will Change

Previously, tax benefits of alimony were a strong consideration for higher income spouses. Now, without the benefit of any deduction, other items may be used to offset the implications of this law. In other words, we will likely see higher property distributions, lump sum payments, retirement divisions, and so forth being offered in lieu of alimony payments.

Consider a Prenuptial Rewrite

For those who have signed prenuptial agreements in the past, it may be wise to see an attorney to do a quick rewrite before 2019. After all, one common provision in many prenup agreements is a higher alimony payment (which includes tax benefits for the paying spouse) in exchange for less property distribution and less division of other assets, like retirement accounts, pensions, annuities, investments, and business interests. Given the lack of a tax benefit for alimony payments, those with prenups may want to strongly consider paying a little money to have an experienced divorce lawyer go through the old prenup to make sure it remains a viable and beneficial agreement going forward.

Getting Advice from an Alabama Divorce Lawyer

Whether you are considering a divorce, facing one right now, or just looking to take proactive steps to update your prenuptial agreement, the attorneys of 5 Points law Group are available to answer your questions and help you stay up-to-date with the most recent changes in the law. Call (205) 352-4455 or visit online to speak with an attorney today.

 

 

Heather Fann
Heather Fann
Heather's practice seeks to preserve the dignity of clients through healthy paths for their changing families, employing both modern and traditional means of resolution including collaborative practice and methods such as use of Parenting Coordinators, as well as mediation, though she stands ready to litigate where necessary.

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