If you've been following the news lately, you may have heard about the new tax plan that was recently signed into law by President Trump called "The Tax Cuts & Jobs Act" (referred to as "The Plan"). The Plan makes several important changes to the existing tax laws and one of the most important ones, and the one I will discuss today, is the change to the alimony laws.
When does the Plan apply?
The first thing to know is that this law does not affect any Divorces filed before December 31, 2018. That means if you file for Divorce on December 31, 2018 but your Divorce is not finalized until December 2019, the Plan's changes to alimony will not affect you.
What is the current law?
The current tax laws allow alimony to be deducted by the paying spouse which causes the income of the paying spouse to be reduced by the annual amount of alimony paid. This in turn lowers that person's tax liability. The current tax laws require alimony to be included in the receiving spouses' income which causes the receiving spouse to pay taxes on the annual alimony received. This in turn increases that person's tax liability.
How does the Plan change the current law?
The really important part is that the Plan removes the tax deduction previously provided for alimony. This means that for all Divorces filed after December 31, 2018, the paying spouse can no longer deduct the alimony from their annual income and the receiving spouse no longer has to pay taxes on the alimony received. As you may realize, this is not helpful to the paying spouse but extremely helpful for the receiving spouse. Essentially, the law begins treating alimony like it currently treats child support, which is that it is not deductable from the paying spouse or taxable to the receiving spouse.
This the current impact the Plan will have on Divorce cases involving alimony as of the date of this article. Of course, any modifications to the Plan between now and December 31, 2018 may change this information.
The contents of this blog entry are provided for informational purposes only. You should consult with an attorney to determine how the law applies to the facts of your particular case. Reading this blog entry does not create an attorney-client relationship with Kelly McGriff Law.