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New Changes to Tax Code Affects Tax Breaks for Divorced Couples

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Alimony Tax Changes

Determining alimony has always been a difficult task for lawyers and spouses who want to get divorced. However, new changes to the tax code will make alimony determinations even more difficult.

In the past, the difficulty of figuring out alimony was primarily due to each state it having its own criteria for how much and how long alimony payments should be allocated. According to Mary Kay Kisthardt, a professor at the University of Missouri-Kansas City School of Law, “There's not really a cohesive rationale for alimony. In any given state, we're not sure what we're trying to do."

Despite this, one rule was consistent over the past 75 years: Alimony was deductible for the payer, and the recipient paid income tax on it.

The new tax code will upend this consistency and cause a highly subjective disruption for divorce lawyers and people going through divorce. Under the Tax Cuts and Jobs Act, divorces that have been finalized after Dec. 31, 2018, will no longer be able to deduct alimony for the payer spouse. In addition to this, taxes will no longer need to be paid on alimony by the recipient spouse.

Lawyers across the United States are now trying to understand how these new changes will affect their clients. Many in the flied of law are anticipating that divorces will become messier. For example, judges and lawyers in the state of California use special software to calculate alimony. Under the new tax code changes, the software system used by the state will be obsolete.

Because offering tax relief to alimony payers can sometimes move divorce negotiations along without having to go to court, many lawyers are anticipating an increase in cases that end up needing courtroom litigation.

Speaking about the new changes, Tom Leustek, founder of advocacy group New Jersey Alimony Reform, says, “The two households created by a divorce simply cannot function as cheaply as the single household of an intact family. The present tax structure that helps ameliorate those burdens has now been eliminated."

With the old tax code, a household's income got tax relief in a divorce because the higher-paid spouse is transferring income to the lower-paid spouse. The missing tax benefit can make divorce less affordable and might force couples to stay together in an unhappy marriage because of the financial implications.

Should I Modify My Existing Alimony Agreement to Adhere to the New Tax Code?

In light of the new tax code changes, many people have been wondering if they should change their existing agreements to fit the new code, this way they don’t have to pay taxes on it anymore. However, experts suggest that it is not clear if agreements modified in 2019 would still be subject to the new tax rules. Either way, the changes are expected to bring in less money for the recipient spouse because the paying spouse will have less money to pay from without the old deduction.

The new changes will also make it harder for the alimony recipient to contribute to a retirement account. This is because retirement contributions usually have to come from taxed income. In anticipation of the changes, many people will be in a hurry to get their divorces finalized in 2018 to avoid issues with the new tax laws.

Do you have more questions about how the new tax changes will affect your alimony agreement? Contact our team of Jacksonville divorce attorneys to discuss your situation.