What the New Tax Bill Means for Alimony

It’s been said that ‘fools rush in’ to marriage but a recent, unexpected change in the new tax bill may mean that some couples may just rush out – to the courthouse.

Included in the new tax bill is a provision that scraps a 75-year-old tax deduction for alimony payments, causing many divorce experts to worry that the change will make negotiations tougher, resulting in less spousal support as money goes to taxes instead.

Understandably, such changes have caused concern so below, we’ve addressed some of the most frequently asked questions about how the bill could potentially change the landscape of divorce and alimony in the future.

How does it work now?
Currently, the spouse paying alimony can deduct the full amount on their taxes and the recipient pays taxes on the alimony at a rate of 15 percent. But the new rule means the government will end up with more of a divorcing couple’s money.

What’s changing?
Any divorce started after December 31, 2018, will eliminate the deduction for the spouse paying alimony and the spouse receiving the money will no longer have to pay taxes on it.

When is it changing?
The new rules won’t affect anyone who divorces or signs a separation agreement before 2019.

Why the change?
The tax-writing House Ways and Means Committee considers the alimony deduction a ‘divorce subsidy’ as ‘divorced couple can often achieve a better tax result for payments between them than a married couple can’ the committee explained last month. Further, the panel explained that alimony should be treated like child support, which isn’t tax-deductible for the payer or taxable for the recipient.

How many people receive alimony?
While statistics vary – much to the chagrin of the U.S government – the Census Bureau says 243,000 people got alimony last year, 98 percent of them women. The Internal Revenue Service, however, says 361,000 taxpayers claimed they paid a total of $9.6 billion in alimony in 2015, though only 178,000 reported receiving spousal support.

What are the concerns?
Without the deduction, critics and experts fear that higher-earning spouses won’t pay as much to their exes, with forecasts predicting that future alimony recipients may lose 10-15 percent of what they’d get under the current law.

The law won’t take effect until next year, giving divorcing couples a reprieve – but the change does indicate that 2018 could be a potentially wild year for divorces though it’s difficult to really predict exactly how it will affect everyone.

Whether you’re currently seeking a divorce or are considering one, call Christina Anton with Anton Garcia Law for a divorce attorney who is knowledgeable, experienced and dedicated to Representing Your Best Interests.