It's coming up on a year since the Tax Cuts and Jobs Act became law last December. There are provisions in the law that change how alimony is taxed. Those changes apply only to couples whose divorces are finalized after the last day of this year.
That may have seemed a long way off if you were considering the possibility of divorce last December. However, if your divorce won't be final until next year, it's essential to understand how the changes will impact you if you or your spouse is seeking alimony.
Under the new law, alimony won't be tax deductible for people paying it. Likewise, those receiving it won't report it as income on their taxes. The changes are predicted to bring almost $7 billion into the government coffers in the next ten years. However, that money is coming out of the bank accounts of divorced couples.
Among those most impacted will be people in the upper tax brackets. For people who were counting on a large tax deduction and significant tax break to offset the pain of alimony payments, that won't happen if the divorce isn't final until 2019.
As a result, divorcing spouses who are being asked to pay alimony will likely work harder to negotiate lower amounts. Divorces that would have been settled without litigation in the past may go to court as spouses battle over how much alimony should change hands.
If a spouse is successful at minimizing their alimony obligations, it means less money going to the spouse with a lower income. In most cases, that's women, who already are generally more negatively impacted financially in divorce than men.
Divorce attorneys also express concern that even though child support payments aren't directly impacted by the new law, spouses could be more likely to fight over those since they're often decided along with spousal support payments.
If you're just beginning the divorce process, it's unlikely that you'll have it finalized by New Year's Eve. Therefore, if alimony is one of the issues on the table, it's crucial to understand how it will impact you financially to pay it. Alternatively, if you're the one seeking it, it's essential to negotiate to get the amount you need to make ends meet after divorce. It may be wise to consult with financial and tax professionals in addition to your Tennessee family law attorney.