With Alimony Payment Tax Deduction Disappearing, Many Couples Are Rushing To Finalize Divorce
A number of Americans are rushing to get a divorce before the end of 2018, and with good reason: As of 2019, when the new tax law (the “Tax Cuts and Jobs Act” or “Act”) goes into effect, alimony payments will no longer be tax-deductible for the payer.
Some experts are predicting that this change could impact overall alimony payments by approximately 30 percent; others are also very concerned that divorce agreements will be more difficult to negotiate in general because this change arguably removes the incentive for the spouse with the higher income to settle on something reasonable. Below, we discuss some of the concerns associated with this change.
What the Tax Cuts and Jobs Act Changes
Historically, alimony payments have often been substantial; therefore, the tax deductions available to the payer have frequently played a large part in what made these payments possible in the first place. Conversely, alimony recipients always had to report the payments as taxable income.
The Act flips this, making payments under divorce or separation executed or modified in a specific way after December 31, 2018 no longer deductible for the payer, while recipients no longer have to include these payments in their taxable income. In addition, in order for modified agreements to be affected, the modifications would have to specifically state that the Act’s treatment of alimony payments now applies.
How to Ensure That Alimony Payments Are Deductible In Pre-2019 Divorces
Keep in mind, however, that in order for alimony payments made in divorce agreements prior to January 2019 to still qualify as deductible alimony, payers must still honor the specific tax-law requirements, which include payments:
- Made pursuant to a written divorce or separation instrument;
- To or on behalf of a spouse or ex-spouse (note that some payments to third parties qualify if they are made on behalf of a spouse or ex-spouse and pursuant to the agreement);
- That are not decidedly labeled as non-alimony;
- Made to an individual who does not live in the same household or one who files a joint return with the payer;
- Made in cash or cash equivalent;
- That are decidedly not child support;
- That include the payee’s Social Security number; and
- That do not continue if the recipient party dies.
If they do not, they are generally treated as child support payments or payments that address the division of marital property. If considered to be the latter, they become non deductible personal expenses for the payer and tax-free funds for the recipient.
Divorce & Alimony Attorneys Serving West Palm Beach, Florida
When it comes to addressing alimony payments, it is now more important than ever that you work with an experienced divorce/alimony/spousal support attorney to ensure that you have someone working by your side to further your best interests in the negotiation and drafting of divorce decrees. Contact West Palm Beach, Florida divorce attorney William Wallshein today for professional assistance.