Working through the complex process of divorce is rarely easy, but for those who deal with alimony, now is definitely time to pay attention to the details. On January 1, 2019, major changes in the federal tax code take effect, and the impact on future alimony payers is significant.
For many years, paying alimony has weighed heavily on the pockets of the spouses who pay it, but they could take some financial comfort in knowing that those payments were tax-deductible, giving them a bit of a break come tax season. However, under the new law, alimony payments are no longer deductible for those whose divorces finalize on or after January 1st.
If you anticipate alimony factoring into your divorce, or if you are already in the middle of the divorce process, you should take this deadline seriously, whether you are the paying party or the receiving party. While it may seem at first that only the paying party should have concerns, that is a narrow understanding of the implications of this change in the law and how it may affect the divorce process.
Who is affected?
It may appear that only the paying party will feel the heat of these changes in the law, but this is not a very nuanced approach. Once the law takes effect at the end of the year, it is true that paying parties may no longer deduct alimony payments from their tax returns, which is plainly a disadvantage.
However, reaching a divorce settlement includes many moving parts, and rarely can one aspect of the agreement shift without other aspects shifting in response. The various areas of a settlement and parenting agreement may include a number of forms of support or property division. The party who pays child support, alimony and also gives up significant portions of his or her assets, does not magically have more resources to offer when the law changes over at midnight.
If the paying party cannot retain the tax break that softened the blow of alimony, then he or she simply has less to offer for alimony. This may ultimately mean that spouses must fight over how to divide a smaller pie while the federal government increases its tax revenue.
Protect yourself with strong planning
Navigating a divorce is difficult, especially in the face of such a radical change in alimony law. Without careful, studied attention to detail, you can easily find yourself on the receiving end of a bad deal, motivated to accept it because you don't see how things might get better.
While each couple's struggles are different, it is always wise to protect your rights and priorities with a strong legal strategy that accounts for the details and changing laws. Craft a resolution that is truly fair as you move towards the next chapter and a fresh start.