Ask Jennifer: A Taxing Situation


Dear Jennifer:

I have been considering divorce recently and when I discussed it with my best friend he told me that because of the new tax laws that I “better be quick about it”. I asked what he meant but he told me he just read a headline about it and said I should look into it. Can you explain what has changed and what in the world tax laws would have to do with a divorce? Is he right, should I get a divorce quickly? For reference, I’m the sole breadwinner in the family as my spouse hasn’t worked for our entire marriage (22 years), and we have two children together (ages 8 and 21).

Perplexed in Pelham

 

Dear Perplexed,

First, I would never suggest that anyone rush into divorce, regardless of tax law. I always suggest that people exhaust all other options before jumping to a divorce, especially when children are involved. That being said, your friend is absolutely right that the new tax law will make a big change in the area of divorce, especially in regards to how alimony is handled. Under the old law, if you paid alimony, you were able to deduct that amount from your taxable income and the person getting the alimony paid taxes on the money that they received from you. Under the new tax law for all divorces finalized after December 31st of this year, the person paying alimony will no longer be able to deduct that amount from their taxable income and thus will be responsible for paying taxes on all of that money whereas the person receiving alimony will receive the money tax free.

Basically, under the old system, more money stayed with the divorced couple and less went to Uncle Sam. The person paying the alimony got a tax break on the alimony payments, which made them a little easier to swallow. This also made it easier to pay an agreeable level of alimony as it was deducted from taxable income, this even helped your overall tax rate in most cases. The person receiving the alimony was most likely taxed at a much lower rate on the money that they received. Overall, both parties ended up with more money in their pockets at the end of the day. For those who divorce in 2019 and beyond, however, you will have to pay out of pocket significantly more for your ex to receive the same level of support as in the past since you would now be the one paying the tax and your bracket is much higher to begin with. Overall, I think this tax change will make divorces much less likely to settle out of court as the person paying alimony is going to want to pay less to counter the burden of having to pay out taxes on alimony, while the one receiving is still going to want as much alimony as possible. This is a huge game changer for how we divorce attorneys negotiate settlements and how alimony payments will be structured in our agreements in the future, not to mention how it might complicate things like prenuptial agreements and property division. As to your specific case, just based on the fact that you told me your spouse has not worked in over 22 years and you are the sole breadwinner, it’s very likely that a judge would order some sort of alimony payment. In this case, if you do decide to get a divorce and are able to get it finalized this year, you and your soon-to-be ex will likely have more money to split amongst yourselves as opposed to giving a larger portion to taxes due to the way alimony will be structured going forward. Whatever you decide to do, I wish you the best of luck. God bless.

– Jennifer

Jennifer G. Rose is the founder and lead attorney at The Rose Law Firm LLC. One of only a handful of certified family law specialists in the state, Jennifer and her firm have won dozens of awards for their work in the field. Those wishing to reach her may call 205-323-1124 24 hours a day or visit rosefamilylaw.com. Her firm gives complimentary initial consultations in person.

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One Response to “Ask Jennifer: A Taxing Situation”

  1. Sal says:

    How does this affect couples whose divorce was finalized prior to 12/31/18, but are awarded an alimony modification after 1/1/19? Would the taxes stay with the receiver, or would the modification cause a switch to the new rules?

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