OLG LEGAL COMMENTARY:
OLG Founder & Managing Partner
The Tax Cuts and Jobs Act is a congressional revenue act that implements many changes including reduced tax rates for businesses and individuals. Of particular interest is a part of the new law that relates to the taxation of spousal support payments, commonly known as alimony as well as significant changes to the alimony tax deduction.
The new tax law introduced significant changes to how alimony is taxed, mainly who is responsible for paying those taxes. Under the previous law, an alimony tax deduction could be taken from the payor’s annual federal taxes and had to be reported as taxable income by recipients.
Beginning on January 1st, 2019, alimony will no longer be tax deductible for those who pay alimony and will no longer be taxable income for those who receive it. Alimony payors will now be required to pay taxes on more of their income, as the portion allocated for alimony payments will now be included, while alimony recipients will keep the payments tax-free.
Does the new Tax Cuts and Jobs Act law apply to me?
The new law will not be retroactive for individuals currently paying or receiving alimony, meaning if your divorce is finalized on or before December 31st, 2018, you will not be affected. However, if you modify your divorce agreement and/or alimony payments after this cut-off date, you may then be subject to tax treatment under the new law. If you have not finalized your divorce before the start of 2019, the new law will apply to you.
Will the new Tax Cuts and Jobs Act law benefit me?
If you pay alimony
If you believe you will likely be ordered to pay alimony as a result of your upcoming divorce, the new law will not benefit you. Under the previous law, alimony payments were tax deductible, meaning the yearly total of your payments was deducted from your tax liability, this alimony tax deduction lowered the amount you owed in taxes. Thus, it may be to your benefit to finalize your divorce before the new law takes effect in 2019 and you lose out on the alimony tax deduction.
If you receive alimony
If you believe you will likely be receiving alimony as a result of your upcoming divorce, the new law may benefit you. As alimony will no longer be taxable income, those receiving alimony will benefit by no longer paying any taxes on the alimony payments they receive. Thus, under the new law, it may be to your benefit to file for divorce in 2019 after the new law takes effect, so you can keep all of your alimony tax-free. However, it is important to consult with your attorney regarding all of the factors that may affect the alimony you plan to receive as the new tax law could have further implications on your divorce and alimony.
How the new law affects divorced couples.
Divorced couples will likely lose money overall as alimony recipients are typically in a lower tax bracket than payors, and the previous tax structure allowed divorced couples to keep more money within the family unit. This new allocation of taxes may affect your decision on when to finalize your divorce in order to maximize resources for your family. Potential alimony recipients should be aware that this change in the tax law may affect the amount of alimony awarded to them. As the payor will no longer benefit from an alimony tax deduction and cannot deduct the payment from their taxes, they will have less money from which to pay alimony as a result of paying taxes on more of their income now, and alimony awards may be reduced.
For more information on how this change might be a factor in your divorce, contact your attorney.
Jennifer Englert is the managing partner and founder of The Orlando Law Group, PL. For over 15 years, she has focused on business disputes, business law, general civil litigation, special needs & education law, family law, personal injury, and real estate. She has represented entities and individuals in both federal and state trial and appellate courts.
Founded in 2009, The Orlando Law Group, has been named one of the fastest-growing law firms in Central Florida and through America [ranked No. 105 among the top 500 fastest-growing law firms in the United States, per the 2017 Law Firm 500]. It has earned a reputation as the Orlando-area law firm that cares about its clients and the communities it serves. Offices located throughout Orange and Seminole counties. To contact Englert, or for