BIG TAX CHANGE COMING IN 2019!
Currently, individuals paying spousal maintenance (also called “alimony”) can deduct those payments on their tax returns. And the individual receiving spousal maintenance must report it as taxable income.
In our experience, the person paying support is more willing to agree to higher payments, as it reduces their taxable income. In turn, the recipient would receive more spousal maintenance, which improves their financial situation.
This helps both parties financially.
However, these benefits will go away as of January 1, 2019.
The person paying spousal maintenance will be required to pay tax on any payments made to their ex-spouse. And the person receiving alimony will likely get a lower amount due to their ex-spouse having less money to pay them.
The financial pies will be smaller for each party.
So what does this mean for you and your spouse if you are heading towards divorce?
- If you and your spouse finalize your divorce in 2018, you can still take advantage of the currently favorable tax treatment of spousal maintenance.
- If you and your spouse don’t finalize your divorce in 2018, you will lose this benefit.
- Tax reform will also impact child support, as guidelines base the amounts on the combined net incomes of both parties. The spousal maintenance payor’s net income will go down, the recipient’s will go up and the amount of child support received will be reduced.
That’s why it’s in your mutual best interests to mediate your divorce with us. And finalize it before December 31, 2018.