For years, taxpayers who pay spousal support could obtain significant relief come tax season by claiming support payments as deductions on their tax returns. This deduction served as one of the factors that spouses consider when negotiating fair spousal support terms, but not any longer. With the passage of the new tax law overhaul, congress did away with this deduction altogether and also changed how each party accounts for these payments on one’s respective returns.
Those whose divorces did not finalize before the tax law took effect on Jan. 1, 2018, should reconsider the terms of spousal support, even if a mutual agreement currently exists. With the significant alterations these tax law changes bring to balancing spousal support terms, an agreement that was fair to both parties before the changes took effect may no longer be fair.
If you expect spousal support to factor into your divorce, or even if you are simply unsure, do not hesitate to reach out to an experienced divorce attorney. These matters can mean significant extra expense or savings over the life of your alimony agreement, so it is crucial that you keep your rights and priorities protected throughout the divorce process and beyond.
How does the new law change spousal support?
Under the new tax law, individuals who pay spousal support may no longer deduct those payments from their tax bill. Previously, the law allowed paying spouses to debut these payments, softening the financial blow of giving a portion of one’s income to someone else.
Now, the paying party must instead claim the payments as part of his or her income, to be taxed. This allows the government to tax most spousal support payments at a higher rate than it did under the previous system. Most spousal support payers are in higher tax brackets than the ex-spouses they support, meaning that taxing the payments as part of the payer’s income generally increases that tax revenue.
How do these changes affect support negotiations?
It remains to be seen how the tax overhaul may affect every divorce, but we can anticipate some of the implications clearly. The removal of spousal support deductions and the requirement for paying individuals to claim these payments as income allows taxation to claim a larger percentage of funds from both parties.
Those who pay support no longer gain any back-end benefit from the payments in the form of the deduction. This means that many spouses simply cannot afford to pay as much in support. Whereas previously, the receiving spouse could reasonably ask for larger payments knowing that the paying spouse would receive the deduction, the laws take away flexibility from both partners.
Don’t face divorce without help
Divorce is always complicated, but those who divorce in 2018 and after must now contend with the complications of a new set of tax laws that reach into many different areas of married life. In this confusing environment, it is even more unwise than usual to approach divorce without professional legal counsel. Protect yourself, your rights and the ones you love by consulting with an experienced attorney who can help you understand your divorce priorities and achieve them.