Many people are concerned about the effect the new tax bill will have on their spousal support deduction. In the past, spousal support has been treated as a deduction for the obligor and income for the obligee. However, the new tax bill will change all of this. Below, we explain how these new changes might affect you.
WHAT YOU NEED TO KNOW
The new Tax Cuts and Jobs Act changes the way divorce and separation agreements will be executed after 2018. Under the current tax rules, if you pay spousal support or a separate maintenance, the payments you made throughout the year can be deducted. This is called an “above-the –line” deduction. Spousal support payments are taxable to the recipient spouse under these rules.
The good news is that if your divorce is finalized on or before 12/31/2018, you can still continue to claim spousal support as a tax deduction. However, under the new tax laws, you can no longer make a deduction for your alimony payments if your divorce is finalized after 1/1/2019. This not only means that the alimony-paying spouse won’t be able to deduct their payments, but that the alimony-receiving spouse can no longer include support payments in their gross income any longer. The new tax law only appears to impact spousal support effective 1/1/2019, so anybody ordered to pay spousal support before that date is grandfathered in.
This is important information to consider if you are currently going through a divorce and might wind up being obligated to make spousal support payments. If you’ve been considering divorce but haven’t quite decided to make a move yet, you should speak with our team of divorce lawyers to find out how the new tax bill could affect your divorce.