How will the new tax code change divorce negotiations?
Starting on January 1st, the new Tax Cuts and Jobs Act will take effect and the law could result in big changes when it comes to alimony. Under the old tax laws, alimony payers were able to deduct the amount outlaid in alimony from their federal income taxes. For many divorcing spouses, the deduction became a central negotiation point, making the payment of alimony less onerous to the paying spouse. Now, however, the Tax Cuts and Jobs Act will remove the alimony deduction. It is feared by many that the loss of this deduction may make divorce all the more painful.
The New Tax Code
The Tax Cuts and Jobs Act will make two major changes to the arena of alimony. The Act will first eliminate the federal tax deduction for alimony payments. Second, the Act will make it so that alimony recipients no longer owe federal tax on the alimony they receive. Nearly 600,000 taxpayers claim the alimony deduction each year, with deductions climbing to over $12.3 billion. A greater percentage of men will pay alimony each year, with wives traditionally comprising the main recipients of alimony.
Take Advantage of the Current Tax Laws
As the alimony landscape gets set to change, there are steps that couples currently going through a divorce can take to lessen the impact of the new tax law. Spouses who are planning to file for divorce soon may wish to go ahead and file now. Spouses who will likely be required to pay alimony will benefit from reaching a divorce settlement now so that they are grandfathered in to the current tax laws. Recipient spouses may want to wait until the law takes effect, as this will limit their taxes. Know that by waiting, however, a recipient spouse could face a lower settlement offer by their spouse.
Many divorce experts fear that the new tax law could harm women, who are more often on the receiving end of alimony. Payer men who have lost their tax incentive to pay alimony may be more reluctant to settle the divorce for a reasonable sum. Men and women alike should contact an experienced family law attorney for assistance with negotiating a strong divorce settlement.