Understanding What the 2018 Alimony Tax Law Means to You

Kane County Spousal Maintenance Attorneys

Since 1942, alimony has been tax-deductible for individuals who pay it and taxable income for individuals who receive it. However, this will be changing on January 1, 2019, when changes made to the federal tax code by the Tax Cuts and Jobs Act of 2017 will go into effect.

The new alimony law is a huge disruption to divorcing couples across the nation. Now, many couples already in the process of divorcing may need to reevaluate how they are looking at their divorces and what they can expect after their divorces are finalized. If you are considering seeking spousal maintenance in your divorce, or if you anticipate being required to make payments to your former spouse, discuss the law change with an experienced divorce lawyer to get a better sense of how it will likely impact you personally. It could mean having to alter your divorce strategy in order to reach a more favorable settlement. It is also a good idea to speak to an accountant about your current tax obligations and how they will change with the new tax code, and this advice can supplement the information you receive from your lawyer.

Taxes on Alimony

For divorces finalized after December 31, 2018, spousal maintenance payments will not be subject to taxation for the recipient. Instead, recipients will simply receive their maintenance payments without having to report them as taxable income.

Previously, individuals who made alimony payments could deduct the payments from their gross income, potentially lowering their tax burden by putting them into a lower tax bracket. Now, this is no longer the case.

By keeping paying spouses in higher tax brackets, the federal government stands to see an increase in revenue after 2019. Individuals, both payers and recipients, will largely have less money at their disposal. The new law will likely spur a trend of smaller alimony orders predicated on payers’ loss of the tax deduction cushion and recipients now being able to keep all of their alimony income rather than having to pay income taxes on these payments.

How the New Alimony Tax Law Could Change Divorces in the Future

Although the full extent of how this change to the tax code will affect divorce cases has yet to be determined, divorce lawyers across the country are speculating about the changes that will likely occur. The tax obligations and benefits that came with alimony were previously used to negotiate the amount and duration of alimony that individuals received. Without the benefit of writing off alimony payments, paying spouses will be less likely to agree to proposed alimony amounts. It can also reduce the bargaining power of dependent spouses, who are overwhelmingly women, because they will likely now face greater opposition in their efforts to secure appropriate alimony figures to cover their post-divorce needs. Overall, the new tax law could make American divorces more contentious and drawn-out because of this change in negotiation dynamics.

Keep in mind that the new law will only affect alimony orders entered in January 2019 or later. If you were divorced prior to the new law going into effect, it may be possible to modify your existing spousal maintenance order once the new goes into effect, as long as you can demonstrate that you have experienced a significant change in circumstances. If you are considering taking this step, discuss it and all of its potential ramifications with your lawyer first to determine if it truly is the right choice for you and your former spouse.

Some individuals are already opting to rush their divorces along to have them finalized before December 31, 2018, so they can continue deducting their alimony payments on future tax returns. Others, such as individuals who are seeking spousal maintenance, may now have an incentive to stall their divorce proceedings until after the new year.

Work With an Experienced Kane County Divorce Lawyer

Before you file for divorce, there is a lot to understand about the divorce process and all its components, including how your marital property will be divided, how spousal maintenance and child support are calculated in Illinois, and what your new tax obligations will be after the divorce is finalized. To discuss these topics and how they pertain to your divorce in detail, contact our team of experienced Kane County divorce lawyers at Goostree Law Group today by calling 630-584-4800 to set up your initial legal consultation with us.