The new tax code that went into effect at the beginning of this year affected the long-standing way in which alimony payments have historically been handled. Former spouses who make alimony payments no longer qualify for tax deductions. Their recipient ex is now required to pay income taxes on what they receive. This approach to taxing alimony is significantly different from how it’s historically been for the past few decades.
Both paying and recipient spouses have found themselves with less money to their names ever since this new tax code went into effect at the beginning of this year. Many payors find themselves falling into higher tax brackets than they previously did because they’re no longer able to take income deductions for the spousal support as they used to be able to. Recipient spouses face much the same plight as their taxable income is now higher than it used to be.
Many former spouses have had to come up with varying strategies to minimize their tax burden. One strategy that many ex-husbands and wives have pursued is transferring pre-tax funds contained in a retirement account to their former spouse. The benefit that the recipient husband or wife receives from agreeing to this option is that it only requires them to pay taxes on funds that they withdraw.
Another alternative to alimony that former spouses have increasingly agreed to since new tax codes went into effect earlier this year includes setting up charitable remainder trusts (CRTs).
Paying spouses are increasingly funding these with an initial lump sum of money that’s payable to their spouse on a periodic basis. Any funds that remain in the trust after a period of time transfer over to a charity. One of the benefits of setting up a CRT is that it allows the paying spouse to receive a tax break.
There are many different pros and cons associated with pursuing these different alternatives to spousal support payments in your Florida divorce case. An attorney can advise you as to what those benefits and drawbacks are and help you decide how you should proceed in your own Fort Myers divorce case.