Divorce is About to Get More Expensive in 2019; Alimony is No Longer Tax Deductible
October 30, 2018
by Jennifer Weaver
Wednesday, October 17th 2018
LAWYER – Madeleine Marzano-Lesnevich
(KUTV) — If it wasn’t bad enough with a recent judge ruling that evidence showing cohabitation can cease alimony payments, a new law going into effect Jan. 1 will end a 75-year-old tax deduction for alimony payments.
No longer can alimony payers deduct their payments them from their income in 2019. Additionally, alimony recipients will no longer owe federal tax on this support.
Both of those changes are credited to the passage of President Trump’s Tax Cuts and Jobs Act. The new provision takes effect for divorce and separation agreements signed after Dec. 31, 2018.
“The new tax plan will most certainly alter the ways in which divorce cases are settled and couples need to be prepared for these changes,” said Madeline Marzano-Lesnevich, president of the American Academy of Matromonial Lawyers, in a press release. “The elimination of the alimony tax deduction has removed a powerful negotiating tool and turned it into a difficult stumbling block for spouses trying to settle a divorce.”
Some divorce experts say couples may rush to get divorced before the end of the year so they can be grandfathered into the existing law that allows tax deduction for alimony payments. Still other critics have claimed that without the deduction, higher-earning spouses won’t pay as much to their exes.
A recent survey of members of the AAML found 95% of respondents expect the new alimony rules will change how divorces are settled; and 64% expect the change will make divorces more bitter and negotiations tougher.
To limit potential divorce battles, Marzano-Lesnevich says spouses should practice more financial transparency with one another, especially considering that 600,000 Americans claimed an alimony deduction on their 2015 tax returns, the latest year for which the IRS has data.
Of those Americans who claimed the deduction on Form 1040, more than $12.3 billion was deducted in 2015, according to the IRS.
How does this impact Utah couples?
Let’s say Spouse A makes $200,000 a year and is paying Spouse B $30,000 a year in alimony. Spouse B makes $20,000. Under current law, Spouse A would only be taxed on $170,000 because $30,000 can be deducted whereas Spouse B is taxed $50,000 as the recipient of the alimony because it is considered income.
Under the new law, Spouse A who makes $200,000 yearly is taxed for that entire amount no matter how much alimony is paid to Spouse B. And Spouse B is not taxed at all for any alimony received. Therefore, after a divorce is finalized in 2019, Spouse A is paying more in taxes and Spouse B is paying less.