Under the current system, United States residents enjoy tax-free alimony, which is treated like taxable income for the recipient. In the vast majority of divorces, the alimony recipient earns a lower income. Thus, the current arrangement keeps more money between divorced couples and away from the IRS. With the new bill, however, the spouse responsible for alimony cannot deduct it. This leads to a greater tax burden for both the payer, and arguably, the couple.
Experts worry that the elimination of the alimony deduction will add new challenges to already tense divorce proceedings. New York attorney Lisa Zeiderman tells CNN Money there will ultimately be “less money to go around,” and therefore reduced potential to “make a settlement go down easier.”
Additionally, changes to alimony could spill over into child support, property division and other financial arrangements. Experts predict fewer settlements and even more litigation, which may prove costly for the low-wage couples most impacted by the tax bill.
What About Couples Already Paying Alimony?
The recently passed legislation will not affect already divorced couples with existing alimony agreements. It will, however, impact all divorces after December 31st, 2018. Prospective divorcees worried about the potential hit to alimony have one year to prepare. The impending adoption of new tax law may drive some couples to divorce earlier than intended.
Tax changes are inevitable, but the more you research your options, the better you stand to weather this potentially problematic overhaul.
The experienced Minnesota divorce attorneys at Brown Law Offices, P.A. can help you navigate the rough and uncharted waters ahead. Contact our team to get the clarity you need.