For anyone getting a divorce, alimony may be a significant part of the equation. The court may order one spouse to make payments to the other. Up until the new tax law takes effect, alimony is a tax deduction for the payer and the recipient pays taxes for it. However, that is changing significantly.
The new laws are completely turning the tables on this system. If couples do not have a final grant for spousal support by the end of the year, their tax obligations may change greatly.
New divorce penalty for alimony payers
If a spouse receives a court order after Dec. 31, 2018, that requires alimony payments, he or she will not get to benefit from the old rules. While people generally do not want to pay alimony, even with higher incomes, they could avoid paying income tax for them. But when 2019 comes around, spousal maintenance will no longer be tax deductible.
Benefits for alimony recipients
Current alimony situations treat alimony payments as taxable income for recipients. This is one drawback to receiving alimony under the old rules. However, new spousal support recipients will not need to worry about tax obligations anymore. The new tax laws turn the whole system inside out. There will no longer be taxable income for the recipient.
Big changes for everyone
These new laws have a significant effect on both parties in a divorce. While recipients will get to enjoy payments that last longer and go further, payers must deal with a divorce that is more expensive.
Timing is everything
Individuals who are considering a divorce should take these upcoming laws into account and plan accordingly. Higher-earning spouses who are looking to split may want to finalize their divorces before the end of 2018. On the other hand, lower-earning spouses may want to strategically wait it out until they can reap the benefits of the new laws.