The Changing Tax Laws on Divorce Maintenance Payments (Alimony) After 2018

Divorces may surge in 2018 due to the new tax law that was just passed.  The end of a marriage can bring several concerns to the front of mindfor people in New York, and across the United States. After all, divorce isn’t just an emotional issue for everyone involved, it’s also a financial quagmire. Beyond the expenses of a divorce attorney or child custody lawyer, those seeking a divorce will also need to think about how they’re going to dissolve the family household and transition to two. This means making decisions about everything from parenting time and visitation, to maintenance payments (otherwise known as alimony).

The guidelines that are set in place to help divorce lawyers and courts come to terms with the amount of maintenance that should be paid to a spouse in certain circumstances are designed to make the process as simple and streamlined as possible for everyone involved. However, thanks to the recent changes in tax law that was just signed into law in December 2017, the considerations involved with planning a divorce are about to change.

The Changing Tax Laws and Spousal Maintenance

According to MPNNow, the details for the tax overhaul were around 500 pages in length, which means that there were bound to be some shockers in there for those who had the time to go through all the changes. One of the most significant alterations to those seeking a divorce in the next couple of years, is that the nature of spousal support or maintenance payments (alimony) is changing. In the past, the divorce maintenance payments that were made from one spouse to the other were included as income for the recipient for tax purposes, and deductible from the income for the paying spouse. Now, the United States Congress has decided that this should no longer be the case.

After 75 years without a change, spousal payments will not be taxable for the spouse who receives the payment, or deductible for the spouse paying the money. According to PBS, while this might seem like a good thing for those who need spousal maintenance to help them make regular payments, it might not be quite as beneficial as it appears.  Professionals in the divorce industry are concerned that the changing nature of maintenance payments could make it even harder for ex partners to negotiate on the money that needs to be paid at the end of a marriage.  After all there will no longer be a tax benefit to paying maintenance.

What Does the Changing Law Mean?

Up until very recently, some of the expenses associated with paying spousal maintenance could be softened by the tax laws, which allowed those payments to be “tax deductible”. This means that spouses could pay less on tax, and more on supporting their ex wife or husband. While the spouse receiving the payment was required to pay tax on the money she or he got, this tax was the same as what they would be expected to pay for any kind of income.

Now, following the 31st of December 2018, the spouse responsible for paying alimony will not be able to deduct the amount given from their taxes, and the spouse that receives the cash won’t have to pay taxes on it. In other words, the roles have somewhat reversed. Unfortunately, the change means that the balance between spouses has changed. In the past, it was possible for divorce lawyers like myself to soften the blow of maintenance payments for the payor spouse, by letting them know that their payments were tax deductible. Now, it seems likely that spouses will fight a lot harder to avoid making maintenance payments.

Although it seems like the payee spouse would be likely to benefit from the change, some divorce professionals feel that both parties will suffer. This is because taxes can be important when it comes to figuring out maintenance payments. There’s also some chatter that the changing tax laws might change child support payments too.  Maintenance payments are considered in figuring out parents income for child support purposes.  Accordingly, if there is a change in maintenance payment amounts, the guideline amounts for child support would be changed as well based on different incomes being plugged into the guideline formula.

Making Changes to the World of Maintenance

For most people, divorce is a complicated enough time to begin with, without having to worry about the tax implications involved with spousal maintenance and alimony payments. Currently, the New York Post suggests that around 243,000 people were given spousal support last year, and taxpayers claimed that they had paid an approximate total of $9.6 billion in alimony in 2015 alone.

Perhaps the primary reason why the tax laws are changing, is that congress believes that spousal support should be treated with the same as child support, which is not taxable for the recipient or tax deductible for the payer. Unfortunately, critics feel that when the deduction isn’t available, spouses will not be able to pay as much money to their exes to help them manage life as a single individual.

For more information on the details of divorce law, spousal support, and child support, please feel free to reach out to me, Mr. Darren M. Shapiro to schedule an initial consultation. You can connect with me through our online form, or via phone call to (516) 333-6555.