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New tax bill may affect alimony negotiations

On Behalf of | Jan 4, 2018 | Family Law

With the new tax law, a number of deductions often taken for granted are no longer valid. One of the most crucial changes for divorcing couples to understand is how the new law affects alimony and how each party must report those alimony payments come tax time. If you and your spouse face divorce in 2018, be sure that you understand how these changes affect you.

Until the passage of the recent tax overhaul, alimony was considered part of the receiving party’s gross income, and paying parties could deduct these payments from their overall tax burden on their tax returns. Under the new law, this is no longer possible.

Instead, the law now requires the paying party to count alimony as part of their own taxable income, and removes the ability to deduct payments. The payments are now taxable as part of the paying party’s income, which is generally a higher tax rate than the receiving party.

For those expecting to receive alimony, this may sound like good news, but it comes with complications. While those who pay alimony are now also responsible for the taxes associated with these payments, the new system changes the overall playing field for spouses negotiating alimony terms. Although alimony receivers may have even fewer tax responsibilities when it comes to alimony, those who pay may legitimately argue that the payments should shrink to account for the extra tax burden.

If you face an upcoming alimony negotiation, be sure that you understand how the new tax law affects divorce and property division. Do not wait to reach out to an experienced attorney for the legal guidance you need to protect your interests. Take control of the new year and a fresh start at life after divorce.

Source: CNBC.com, “Here are five breaks you’ll miss the most in the tax bill,” Darla Mercado, Dec. 19, 2017