Late last year, Congressional leaders approved sweeping changes to the U.S. tax code. While those changes have an impact on individual taxpayers and businesses in a number of ways, they also have a direct impact on divorce cases – particularly when it comes to alimony. Also referred to as spousal support or spousal maintenance in Florida, alimony is the payment one spouse makes to another spouse, either on a temporary basis after separation and during the divorce process, as a means to ensure the other spouse can gain the tools to support themselves, or on a permanent basis after divorce.
Under the old tax law – which still applies to tax filings made this year, and possibly to certain individuals in the following years – the individual who makes alimony payments is able to claim them as a federal income tax deduction, itemized or not. Additionally, the party who receives support from a former spouse would claim payments as income, and have it taxed in their bracket, which is typically lower than the payer’s tax bracket.
The new tax law, however, significantly shakes things up. Under the new tax code, individuals who pay alimony will no longer be able to claim support payments as a deductible. Recipients of alimony will also not have the payment taxed as income. To put things simply, payers of alimony lose out of a tax deduction, and recipients gain tax-free income.
Because it is important to understand how the new tax law may impact various individuals, reshape divorce proceedings, and create options for individuals currently paying alimony or considering divorce in the near future, our legal team at Schuttler, Greenberg & Mullins, LLC have put together a few key details you should know:
- When does the new tax law take effect? Although much of the new tax law is now in effect, new provisions regarding spousal support will apply ONLY to divorce cases finalized by a court after December 31, 2018. If your divorce is finalized on January 1, 2019 or after, any alimony payments will be subject to the new tax treatment.
- What if alimony agreements are already in place? If your divorce was finalized on or before December 31, 2018, alimony will still be deductible for payers and taxed as the recipient’s income. However, if you modify payments through the court after the cut-off date, new payments will be subject to treatment under the new law.
- What are some benefits to the new tax treatment of alimony? Aside from providing recipient spouses with tax-free income, there are also some other potential benefits associated with the new tax law. That includes reducing the income of recipients so that they may qualify for state or federal government benefits, including income-based assistance and health insurance subsidies, among others.
- How will the new tax law impact alimony negotiations? In some divorce cases, spouses have the opportunity to negotiate mutually agreement terms for spousal support. With the new tax law, there may be options for reducing payment amounts, as recipient spouses will ultimately gain more money in pocket as a result of not having to pay taxes on the alimony they receive. Such negotiations can also take into consideration any need to offset matters of property division and disproportionate shares of assets, such as when one spouse wants to “buy-out” the other’s share of the family home.
- Should I seek a modification of a current alimony agreement? As with any matter, determining whether or not a modification of spousal support makes sense in your situation depends on the unique facts and circumstances involved. Our attorneys can help you better understand whether a modification is not only possible, but also whether it benefits you to seek court-ordered modifications before or after the tax law provision on alimony goes into effect.
Changes to the tax law and provision on alimony can certainly have an impact on divorce cases moving forward, as well as any petitions to modify existing support arrangements. Because our legal team stays apprised of these issues and draws from over 75 years of collective experience, we can help you take the most appropriate steps toward addressing your divorce or alimony case with your best interests and the new tax law in consideration.
For more information about divorce, spousal support, or any other family law matter, contact us for an initial consultation. Our Boca Raton divorce and family lawyers at Schuttler, Greenberg & Mullins, LLC proudly serve clients throughout Palm Beach County and the surrounding areas of South Florida.