Currently, when an ex-spouse is legally obligated to pay alimony, the ex-spouse gets a tax deduction even if the ex-spouse doesn’t itemize the deduction whereas the receiving spouse must include the alimony as taxable income. Many divorce agreements took that into account and more money was given to the recipient knowing the recipient couldn’t get all of it.
With the new Tax Cuts and Jobs Act (“TCJA”), alimony payments required under divorce or separation agreements executed after December 31, 2018, eliminates the deduction for the payor and the recipient will no longer have to report the income. This also applies to an existing agreement modified after December 31, 2018 – if the modification explicitly states that the TCJA for alimony payments now applies.
This change in the law can be quite expensive for the payor since the tax savings from the deduction can be substantial. So, if you’re in a divorce/separation and want deductible alimony on payments made to the receiving party, it’s in your incentive to get your divorce agreement signed by December 31, 2018. But, if you will be the recipient of payments, delay finalizing your agreement until after December 31, 2018, since the alimony payments you will receive will be tax-free!
For best results, before you decide whether to wrap up your agreement or put off your proceedings until next year, I highly recommend speaking with a tax professional experienced in divorce tax issues to make a smart tax move and choose an attorney who understands the interplay between taxes and divorce. Thomas-McDonald Law Firm helps clients in Florida make wise decisions as one navigates through the divorce process.
By Aislynn Thomas-McDonald and Negin Kordbacheh