Divorce will get messier after alimony deduction scrapped
This article looks at why the new tax law will make California divorces in particular more difficult.
When Congressional lawmakers passed their tax reform bill, called the Tax Cuts and Jobs Act, they probably didn’t think that the new law would lead to a surge in divorces. However, as Politico reports, that is very well what could happen thanks to the fact that the new law eliminates the alimony tax deduction. That deduction has played an important role in determining alimony amounts for the past 75 years. The deduction’s elimination, experts warn, could lead to both payors and payees having less money to negotiate for alimony and to divorce negotiations becoming more contentious and likelier to end up in court.
Eliminating the alimony deduction
For more than seven decades, those who pay alimony have been allowed to deduct it on their federal taxes on the assumption that since they weren’t actually receiving or using that money, it wasn’t fair that they should have to pay taxes on it. Likewise, payees are required to pay taxes on any alimony they receive.
However, the Tax Cuts and Jobs Act eliminates that alimony deduction while also eliminating the need for payees to pay taxes on alimony. The changes only apply to divorces or separations that are initiated after December 31, 2018, giving people until the end of the year to take advantage of the tax cuts. That deadline has led to concerns that many people may rush to get divorced before the deduction is eliminated in the new year.
Messier and more expensive divorces
The elimination of the alimony tax deduction is predicted to make divorces more contentious and costlier for both payors and payees of alimony. Even though payees won’t be required to pay taxes on their alimony payments, they are likely to receive even less from payors when the deduction is eliminated. That’s because payors are often in a higher tax bracket, so their deduction is often larger than what payees pay in taxes on their alimony payments. Therefore, payors are likely to be less generous in how much they are willing to offer for alimony.
The fact that there will be less money available for alimony is just one reason why the elimination of the tax deduction is likely to make divorces both messier and more contentious. Another reason concerns how alimony is determined in the first place, especially in California. As CNBC reports, many judges and attorneys in the state use software to determine appropriate alimony amounts, but that software is heavily reliant on the tax code, which raises concerns that the software will effectively become obsolete. It is also unclear whether prenuptial agreements that were written under the assumption that alimony would remain tax deductible are more likely to be challenged in court after that deduction is eliminated.
Family law assistance
Divorce can be a difficult experience and one that, thanks to the tax changes described above, could soon become even more difficult. These changes should serve as a reminder to anyone who is considering a divorce to talk to a family law attorney immediately. An experienced attorney can show clients what options they have to pursue, including how to most effectively negotiate for a divorce settlement that best prepares them for the road ahead.