Tax reform law contains an unwelcome surprise for divorcees

This article looks at how the end of the alimony tax break will hurt both recipients and payers.

For those considering getting a divorce soon, January 1, 2019 could be a useful deadline to remember for filing those divorce papers. That's because a popular alimony tax break will no longer be available for divorces that are filed on or after that date. The tax break was scrapped as part of the sweeping tax reform legislation passed by Congress and signed into law by President Trump. As the Pittsburgh Post-Gazette reports, the elimination of the tax break will likely make divorce negotiations more fraught and result in less money being available for alimony.

What is being eliminated?

The alimony tax break has been around for more than seven decades and it has allowed those who pay alimony to write those payments off on their tax returns. People who receive alimony, on the other hand, are required to pay taxes on that income. The logic behind the tax break is that only those who are receiving alimony money should be required to pay taxes on it.

However, with the Tax Cuts and Jobs Act, that situation will soon change. Effective for any divorce begun January 1, 2019 or afterwards, those paying alimony will no longer be able to claim the alimony tax break. Likewise, those who receive alimony will no longer be required to pay taxes on it.

No winners with tax break gone

Although recipients of alimony won't have to pay taxes on their payments, the elimination of the tax break is actually likely to hurt both alimony payers and recipients. That is because the current alimony tax break gives payers room to negotiate how much they are willing to pay in alimony, since they can write off the payments come tax time. Without the tax break, payers are likely to be less generous in how much they can provide for alimony.

Furthermore, because payers tend to be in a higher income bracket than recipients, that means the amount they can write off tends to be more than what recipients currently pay in taxes. As a result, without the tax break, recipients ultimately will likely end up receiving smaller alimony payments or else have to negotiate harder for larger payments. Payers, meanwhile, will lose a larger chunk of the payments to taxes.

The January 1, 2019 deadline means that those who want to take advantage of the alimony tax break will need to act fast. As Politico reports, that looming deadline could end up making 2018 a particularly popular year for divorce.

Divorce law

Divorce is a difficult experience for most people, but one way to make the process go as smoothly as possible is by talking to a family law attorney. An experienced attorney can advise clients about what their rights are and advocate on their behalf for their best interests, including when negotiating alimony payments and other important divorce-related matters.