If you thought about getting a divorce before this year, you may want to revisit that math. The extensive changes of the 2017 tax law went into effect on January 1 this year, and anything you knew about tax laws and alimony before 2019 might now be way off.
The tables have turned for alimony taxes
The rule since the Truman administration was that the person paying alimony could treat those payments as a tax-deductible expense. The person receiving the alimony had to pay taxes on it as income. Beginning this year, the script is flipped.
The tax deduction for having to make alimony payments has now been eliminated, and alimony is now tax-free money for payment recipients.
Beware the fine print
You may not have to worry about these changes if your divorce settlement was finalized before midnight on December 31, because the tax consequences of alimony are carried over for you.
However, “finalized” means final. If you modify your divorce agreement now, you may have to live by the new tax rules. Before making any modifications to your pre-2019 divorce agreement, take a close look at what any changes will mean to your taxes.
Also, if your pre-2019 divorce settlement involved a prenuptial or post-nuptial agreement, you can’t be sure of the old rules being grandfathered into this year. Have a meeting with a certified family law specialist.
Divorce proceedings predicted to get nastier
If you meet with a tax preparer, the chances are they gave you a good talking to about some of these changes earlier this year when you paid your 2018 taxes. But they might not have analyzed some of the consequences for American couples generally.
According to Forbes, the new rules are likely to make divorce proceedings more aggressive and emotional from now on.
The divorcing spouse with the higher income is now likely to fight harder than they may have with the prospect of a tax deduction to help defray the cost. The spouse with a lower income may be more inclined to seek higher payments, since the money will be worth more now that it’s tax-free.