Big Tax Changes to Alimony Payments in 2019 and Going Forward

Alimony, otherwise known as spousal support, is a common word in divorce proceedings. Essentially alimony is awarded to a spouse who is not able to meet his or her needs without financial assistance from a spouse that can afford to pay it.

And, as of Jan 1, 2019, there are some big changes that you need to know about when it comes to alimony payments. It’s for this very reason that many spouses rushed to complete their divorce before year end. Or, why some tried to delay until 2019.

The Tax Cuts and Job Act (TCJA)

Do you remember the Tax Cuts and Job Act that was passed by our federal government in late 2017? Well, part of this law changed how alimony is taxed on both the receiving and paying end.

The law stated that as of 2019 two things would happen:

  1. Individuals who pay their spouses alimony will no longer be able to deduct that money from their federal taxes.  
  2. The recipient of alimony will no longer pay federal taxes on that money.

This is huge! Good for some (the recipient spouse). Worse for others (the paying spouse). But, to be clear, if you divorced anytime before Jan 1, 2019 and no matter how long you receive alimony you are not subject to this change in law. However, in 2018, by settlement agreement, spouses could opt into the 2019 change.

The Real Life Impacts of the TCJA

As a result we will most likely see alimony alimony orders go down.

Newly divorce recipients will be able to keep much more of their alimony payment compared to those who divorced pre-2019 because these new payments are tax-free from federal income tax. And alternatively, payers will now bear the full out-of-pocket expense of alimony. So, it’s not unreasonable to think that new orders will be lower than previous to adjust for this fact.

It’s likely that new payers will not pay the same amount in after tax dollars as those who paid in pre-tax dollars. Expect to see states starting to change their laws surround alimony. Legal practitioners like myself are waiting to see the impact of the TCJA on maintenance awards.

Lawyers have numerous ways to mitigate the effect of TCJA on a client by client basis as each will vary. No two divorces are ever the same.

Consult with a Qualified Attorney

These changes involve tax laws which are extremely complex. So, do NOT take this as financial or legal advice. This is a starting point for your awareness. Every situation is different.

We’d encourage you to consult with a qualified attorney like the Law Firm of Poppe & Associates. Schedule your complimentary consultation today.

Harvest,

– Mia Poppe, Esq.