Major tax reform passed by Congress as part of the Tax Cuts & Jobs Act of 2017 will impact tax filings for millions of Americans when it comes to adjustments, inflation, retirement, and cost of living. While many provisions of the tax reform are already in effect, one aspect set to take effect on the first of next year (2019) will have a significant impact on divorce cases – especially when it comes to spousal support.
Spousal support, or alimony as it is also known, is one of the most defining aspects of divorce. Generally, it involves regular payments made by one former spouse to the other. Spousal support may be agreed upon by both parties as a result of negotiation and out-of-court agreements, or may be ordered by the court on a temporary basis during the divorce process or a long-term basis after a divorce, often until remarriage or death of the receiving spouse.
Spousal Support, Taxes & Legal Changes
While spousal support can become an important focus during divorce proceedings, it also creates tax implications both paying and receiving spouses must address when filing their annual tax returns. Under the existing tax law, which will apply to tax filings up until the end of 2018, payers can claim support payments as a federal income tax deduction. Receiving spouses therefore pay taxes for those payments as part of their income. This arrangement exists primarily because recipient spouses are commonly in lower tax brackets than the paying spouse.
For divorces finalized after December 31, 2018, that arrangement will change. Below, we explain a few key points about the changes:
- The new law – Under the new tax law, individuals who pay spousal support will not be able to claim a deduction. Additionally, individuals who receive spousal support will not have those payments taxed as income. This means payers lose a tax deduction, and recipients benefit from tax-free income.
- Divorces finalized before 2019 – Only divorces finalized by a court on January 1, 2019 or later that include spousal support orders will be subject to the new tax treatment. If your divorce agreement is finalized in 2018 or before, it will be subject to the old tax law.
- Modifications – While divorces finalized before January 1, 2019 will be subject to the old tax law, any modifications made to spousal support orders on January 1, 2019 or after would be taxed under the new arrangement. However, in order to obtain any modification, you must prove a substantial change in circumstances to the court.
- Benefits to the new law – There are some notable benefits to the tax changes. Aside from benefitting from tax-free income, recipient spouses may have greater opportunities to qualify for benefits based on income. This may include health insurance subsidies and various state or federal assistance programs.
How Proven Attorneys Can Help
At DiPietro Law Group, PLLC, our divorce and family law attorneys are committed to leveraging our extensive experience, insight, and resources to help clients protect their rights and interests, and make informed decisions about their future. With regards to the new tax law and its impact on divorce and spousal support, our firm can help you understand how it may impact your particular situation – whether you are seeking a divorce now, considering one in the future, or wish to pursue a modification of an existing spousal support agreement.
To speak personally with a member of our team and learn how we may be able to help you, contact us today. We proudly serve clients from multiple office locations in Fairfax, Friendship Heights, Washington, DC, and Atlanta.