The Tax Cuts and Jobs Act (TCJA) signed into law in 2017 includes a change that will affect the taxability of alimony payments for people who divorce, obtain spousal support orders, or modify existing orders in 2019 and beyond.
How it is now:
Under the current law, the payor is able to take a tax deduction for alimony payments that he or she made to his or her former spouse and the payments are taxable income to the recipient.
How it will be next year:
Under the new law, the tax deduction is eliminated and recipients of alimony will no longer have to pay income tax on the money received as support.
The new law will have no effect on support agreements that are currently in place or that are entered as court orders, on or before December 31, 2018. The new law will only apply to (1) divorce or separations instruments that are executed after December 31, 2018 or (2) modified after December 31, 2018 if the modification specifically states that the new tax treatment of alimony payments (not deductible by the payor and not taxable income to the receipt) now applies.
How the changes will affect pending divorces:
If you and your spouse are currently involved in a divorce proceeding and you want the alimony to be deductible, the new tax laws will act as a great incentive for you to get your divorce proceeding concluded by the end of the year or at least for you to enter into an agreement for support by that time.
On the other hand, if you will be the recipient of support, you will have an incentive to delay the process until after the first of the year.
Contact a Tax Pro:
If this is an area of concern to you, you should consult with a tax professional. Family Law attorneys, me included, usually have a good handle on the current tax issues you will face in divorce, but they are not tax professionals. Spending a few hundred dollars to get a tax professional’s advice on an issue that could affect that taxability of future payments, potentially for years, would be money well spent.
If you have any questions about the above law, or any other family law matter, please don’t hesitate to contact me.