The Tax Cuts and Jobs Act (TCJA) is a sweeping reform for tax laws that has the potential to benefit many tax paying citizens in 2019. However, some aspects of the TCJA, such as the changes to the alimony laws for federal tax returns, have the potential to drastically affect the outcome of divorce cases this year and beyond. Bruce E. Turner with Bennett, Weston, LaJone & Turner is an expert in tax law and how it might affect your upcoming divorce. Call or contact the office today to schedule an appointment to learn more.
Changes to Alimony Tax Laws
The new alimony tax laws went into effect on January 1, 2019. Under the old law, when a couple got divorced and alimony was ordered, one spouse would send payments to the other spouse to help ease the transition to financial independence and support the lifestyle that the receiving spouse had been accustomed to during the course of the marriage. The spouse paying the alimony was allowed to deduct that amount from his or her federal income taxes. The spouse receiving the payments then had to claim the payments on his or her federal income taxes.
Under the new law, alimony payments are not tax deductible. In other words, the spouse paying alimony is no longer allowed to deduct the payments from their taxes and the spouse receiving payments is no longer required to report them as income. This is because under the old system, the alimony payments were being taxed at the (likely lower) income bracket of the receiving spouse, and now they will be taxed at the (presumptively higher) tax bracket of the paying spouse. The impact of this change on divorce negotiations in 2019 and beyond could be significant to the final outcome of the divorce agreement for both spouses.
How it Might Affect Your Divorce
Under the old laws, alimony was seen as a favorable option for many couples because of the beneficial tax implications for the paying spouse. However, now that the tax benefits of paying spousal support are eliminated, the wealthier spouse in divorce cases may be looking to offset potential alimony payments with other assets in the marriage. This could mean offering the spouse the marital home, retirement accounts, or other valuable assets in exchange for not paying alimony once the divorce is final.
However, another scenario might be that divorces will become more litigious now that spousal support payments are no longer an incentive to settlement. Divorce cases could be longer, more expensive, and more stressful for couples who cannot come to terms on a final divorce agreement because of this change in the tax code. This could ultimately affect the total amount in assets that each spouse receives when the divorced is finally settled. In light of tax law changes, an experienced divorce attorney is critical to ensuring that you receive everything you deserve in a divorce.
Call or Contact the Office Today
The changes to the federal alimony tax laws have the potential to drastically impact the outcome of your divorce in 2019. To learn more about your legal options, call or contact the law office of Bruce E. Turner in Dallas to schedule an appointment to review your case.