Divorce is hard in itself, but the GOP tax bill is going to mix things up even more. The GOP tax bill will eliminate the alimony deductions for ex-spouses paying alimony. This could have devastating effects on a lot of people’s finances.
Alimony, which is also called spousal support or maintenance, is a legal obligation on a person to provide financial support to his or her ex-spouse as part of a divorce.
Right now, alimony payments are tax free for the person paying the alimony, and taxable to the person receiving the alimony payments. Usually, the ex-spouse receiving the alimony payments will be taxed on a lower tax bracket than the other ex-spouse. Thereby, the deduction was put in place, so the family unit gets to keep more money and less money would go to the IRS.
The new tax bill removes the alimony deduction for those paying alimony. So, the ex-spouse will be taxed on monies he or she does not even spend or keep, and the funds will be taxed on a high tax bracket, so the IRS will receive more income from those families. The spouse receiving the alimony payments will no longer need to pay taxes on that source of income.
Eliminating this tax deduction will not only have devastating financial consequences on families, but will also complicate how child support is calculated and how assets are divided up in a divorce.
The change will take effect for divorces filed after December 31, 2018 and any modifications to current agreements agreed to after that date as well. The IRS says that about 600,000 Americans claimed an alimony deduction on their 2015 tax returns.
Written by: Kathy E. Bojczuk, Attorney at Law