Spouses who pay alimony will soon lose their tax deduction

Article authored by Jeffery M. Leving.

Currently, when one person is ordered to pay alimony (or spousal maintenance) to his or her ex-spouse, that person knows that he or she can deduct those payments come tax time. The fact that alimony payments can be deducted on federal taxes is both fair (since the person paying alimony doesn't actually get to keep the money for themselves) and works to the benefit of both parties (since recipient receives funds but has a lower tax rate than the payor). However, as PBS Newshour reports, after lawmakers in Washington passed their sweeping tax reform law late last year, alimony payors will soon lose that federal tax deduction.

How alimony tax obligations will change

For final divorce judgment entered by a court after December 31, 2018, the responsibility for paying taxes on alimony will be switched from the recipient to the payor. Currently, recipients of alimony are required to declare alimony as taxable income. Payors, meanwhile, have been able to deduct alimony payments on their federal taxes.

Beginning January 1, 2019, however, that deduction will be eliminated, while recipients of alimony will no longer be required to pay taxes on the alimony they receive.

The alimony deduction has been around for more than seven decades. Lawmakers have long held that the person receiving alimony should be the one who pays taxes on it since they are the ones who ultimately benefit from it. Those who pay alimony, on the other hand, don't actually benefit from alimony, thus making it unfair that they should have to pay taxes on money they are giving to someone else.

Changes hurt both parties

The changes aren't just going to hurt those who pay alimony. In fact, the elimination of the alimony tax deduction is likely to be a lose-lose for both alimony recipients and payors. That's because the deduction currently plays a big role in negotiating alimony payments. Payors, who usually fall into a higher income tax bracket than recipients, can right now be more generous in how much money they offer an ex-spouse in the form of alimony. Recipients, meanwhile, currently tend to pay less on taxes on alimony than payors get back through the deduction. The deduction ends up helping both parties, while its elimination simply means there will be less money on the table that can be used for alimony, more money will go to uncle Sam.

As a result, with the new tax law divorces themselves are likely to become even more contentious than they already are. As the Chicago Tribune reports, one survey of matrimonial attorneys found that more than three fifths of them expect the tax changes to lead to more acrimony in the divorce process. Furthermore, Illinois state guidelines on alimony, which currently factor in the deduction, will have to be updated to reflect the changes.

Help in divorce

Divorce is already a difficult process and one that won't be made any easier by the recent tax law changes. With divorces set to become even more bitter, it is important for those who are considering divorce to have legal representation on hand. An experienced family law attorney can help clients understand their obligations and fight to defend their rights during divorce proceedings.

Premarital Agreement

In many jurisdiction, it's possible for those contemplating marriage to enter into premarital agreement to protect their premarital arrests in the event of a divorce. These agreements can also provide for waivers or schedules on maintenance to avoid onerous results for the higher income events. The Law Offices of Jeffery M. Leving will be pleased to discuss preparing a premarital agreement for you are planning a marriage and want to protest yourself from financial disaster in a divorce.