Alimony after divorce will see change under tax reform

On Behalf of | Jan 2, 2018 | Divorce, Firm News |

The financial stress of ending a marriage is perhaps undeniable, but it can be mitigated. Most couples in Nebraska limit the financial implications of divorce by paying careful attention to asset division and other important processes that could affect their future stability. This includes alimony, which is not an uncommon feature of divorce. However, the way couples view this important aspect of family law could soon be changing.

The new tax plan will affect how alimony is taxed in divorces. For the past 75 years, any spouse paying alimony — also called spousal support — could deduct the payments on his or her taxes. This tax break typically makes it easier to afford necessary payments. Conversely, the recipient of alimony must pay taxes on whatever he or she receives. However, since recipients of alimony are typically in a lower tax bracket than those making support payments, it creates an overall tax savings for the pair.

Those who finalize their divorces after Dec. 31, 2018 will be subject to the new tax regulations regarding alimony. This prevents payers from deducting their payments, and recipients will no longer be taxed. Proponents of this change believe it will halt a so-called “divorce subsidy” from which divorcees benefit. On the other hand, opponents claim that it will lead to small alimony payments that leave some divorcees less financially secure than they otherwise might have been.

The reasons for alimony are numerous and as unique as the couples in Nebraska themselves. For those who are concerned about the potential impact of tax reform on alimony, it is a good idea to conclude on all divorce proceedings prior to 2019. Otherwise, couples can still mitigate the possible financial impact of divorce by remaining vigilant as they work toward an agreeable settlement.

Source: The News Tribune, “Exes and taxes: How the tax overhaul will alter alimony”, Jennifer Peltz, Dec. 22, 2017