Some lawyers and professional experts are predicting an overall increase in the number of divorces in 2018, citing that spouses who will pay alimony will look to take advantage of the current tax deduction before it is eliminated. The alimony deduction has been in the tax code since 1942.
Due to the new tax law, spouses paying alimony will no longer be able to take a deduction and spouses receiving alimony will not have to report the payments as income, like tax rules for child support payments. The new laws state that the money used for alimony will be taxed at the payor’s rates. However, the new tax rules will not apply to couples who divorce or sign a separation agreement before 2019.
Many family law attorneys fear that spouses negotiating alimony may try to pay less because there will not be tax savings. Lawyer Malcom Taub estimates that future alimony recipients will see 10-15% less in the amount of alimony received compared to what they’d get under the current law. It is also predicted that divorce proceedings will be more likely to go to court under the new tax law. The current tax setup allows divorce negotiations to move along smoothly and cordially because alimony payors are receiving significant tax relief.
Another concern raised by family lawyers has been surrounding prenuptial agreements. Many couples have alimony provisions written in that assume tax deductions, which may lead to states needing to change their laws regarding alimony guidelines.
In 2017, the US Census Bureau reported that over 243,000 people received some form of alimony; 98% women and 2% men. In 2015, the IRS reported $9.6 billion in alimony payments by 361,000 taxpayers. Current estimates by Congress’s nonpartisan Joint Committee on Taxation show that repealing this deduction could add $6.9 billion of tax revenue over a 10-year period. For perspective, that is less than a half a percent of the $1.5 trillion tax cut plan.
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Partner at John F. Schutz, P.L.
Representing clients exclusively in family law cases for the past 24 years, Mr. Schutz is widely regarded as a marital and family law expert. He is Board Certified in marital and family law by The Florida Bar. As a Fellow of the American Academy of Matrimonial Lawyers (AAML), Mr. Schutz is committed to elevating the standards and improving the practice of family law.
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