January 7th, 2019
Big Changes to Divorce: Alimony & Taxes
Posted in: Family Law Tax Law Tagged: Monica Garcia Harms
Author: Monica Garcia Harms
The Tax Cuts and Jobs Act signed into law in December 2017 is arguable the most significant revision of the Internal Revenue Code since 1986 and changes the tax treatment of alimony.
Prior to the new law, alimony was tax-deductible for the paying spouse and taxable income to the receiving spouse. Starting in January 2019 alimony becomes tax neutral – or nondeductible to the payor and tax-free to the recipient – much like the tax treatment of child support.
What does this mean if you are considering divorce?
Modifications to divorce or separation agreements executed prior to 2019 will preserve the old tax treatment unless the parties mutually agree to apply the new law. If your alimony agreement was executed on or before December 31, 2018, alimony can remain tax-deductible for the paying spouse and taxable income to the receiving spouse. While many provisions of the Tax Cuts and Jobs Act expire, the change in alimony taxation is permanent.
If your alimony agreement is executed after January 2019, the new law applies. For example, if Spouse A makes $200,000 a year and is paying Spouse B $30,000 a year in alimony. Under the new law Spouse A is taxed on the full $200,000 no matter how much alimony is paid to Spouse B. And Spouse B is not taxed at all for any alimony received.