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New Alimony Tax Laws
This year brought new tax laws, following President Trump’s Tax Cuts and Jobs Act of 2017. In my world, the biggest impact of these new tax laws is how it impacts divorcing couples where alimony is involved.
Read about it here.
It used to be that when a divorced spouse paid alimony, the payor could claim 100 percent of that payment as a deduction against earned income. It also meant that the recipient had to pay taxes on that money as income, but presumably at a lower tax rate than the payor.
New Tax Law Deductions
That’s no longer the case! The new tax law removes the tax deductions and implications on both sides. So, the payor is paying taxes on those monies he or she actually earned. It used to be that tax laws in divorce shifted the tax to the lower-income earner. We are no longer able to shift the tax burden.
This lands the entire family in a situation where there is less money to go around.
Negotiations remain the same as they always were. Now, we are trying to find ways to still derive a tax benefit, and thus far, we’ve found one workaround that works in some cases.
Ultimately, we must work with financial professionals who are skilled in tax law as it applies to divorce, to figure out a new solution, get creative, and find creative solutions to make things better for our clients.