A new tax code, that's known as the Tax Cuts and Jobs Act, is slated to go into effect on Dec. 31, 2018, that will greatly impact divorcing spouses' finances.
Beginning the following day on January 1, 2019, the long standing option for alimony payers to deduct their payments on the federal income tax returns will be eliminated. At the same time this goes into effect, the need for alimony recipients to pay federal taxes on the support they receive will be eliminated.
Many legal analysts suspect that the elimination of a payer's ability to deduct alimony on a tax return will cause some to seek a divorce ahead of the December deadline. Husbands and wives who do will be able to continue taking deductions for spousal support in the years to come.
In fact, a recent study conducted among family law attorneys by the American Academy of Matrimonial Lawyers shows that 95 percent of all respondent lawyers believe that the new alimony law will impact how divorces get settled moving forward. As many as 64 percent of those who responded note that they believe it will make the divorce process much more contentious.
Other studies that have been carried out since the new legislation was announced suggest that many alimony payers may actually see their inability to claim spousal support payments as a deduction on their taxes as a good thing. Many believe that they may be able to negotiate lower payments that they would otherwise not be able to do because they can't get a tax break for paying their ex.
If the recipient spouse falls into a low tax bracket, as is commonly the case, then researchers suggest that they may actually be financially crippled further by other provisions listed in the new act.
Divorcing couples can save themselves from having the stress and aggravation of adapting to the new alimony laws by moving forward with their divorces before the end of the year. If that's not possible, it may be beneficial for them to consider a trade of assets as opposed to requesting or paying alimony.
If you're preparing to divorce and you're worried about how this new law will impact your ability to take a tax break for the payments you make, a Fort Myers alimony lawyer can provide the guidance you seek in your legal matter.
Source: Investor's Business Daily, "Divorce rules change: Here's your new strategy for alimony," Margaret Price, June 14, 2018