Alimony and spousal support are aspects of divorce that have a high potential for conflict. When a divorce involves people with wealth, the financial stakes escalate further. In the past, there was a silver lining in resolving these issues in that there were tax benefits that acted as an incentive to paying alimony. However, there are recent changes to the Federal tax laws that the divorcing couple should be aware of.
In the past, there were significant tax implications that came with alimony payments. The supporting party was permitted to write off the alimony payments as tax deductions when filing their Federal tax returns—which could change the tax bracket they fell within and reduce their annual tax obligations. In contrast, dependent parties were required to report alimony received as taxable income. These tax implications played a key role in how parties negotiated alimony, as there was an actual tax benefit in paying alimony.
In 2017, the Tax Cuts and Jobs Act was enacted, which eliminated the ability of supporting parties to take a tax deduction and receiving parties to report the alimony as taxable income. These new tax rules were made effective for divorces after 2018. In essence, couples currently resolving the end of their marriage must now weigh paying and receiving alimony without any tax benefit. Ultimately, this can lead to tougher alimony resolutions than before, or lower alimony payments than would have occurred before the tax changes.
Doesn’t Apply to Alimony Orders Entered Before January 1, 2019
Significantly, for people who have existing alimony orders entered before January 1, 2019, the old tax laws apply and those couples can continue to respectively report their alimony payments as deductions and taxable income. The same is true if a couple attempts to modify an alimony order entered before January 2019, so long as a modified alimony order does not explicitly apply the new laws.
Contact Viloria, Oliphant, Oster & Aman L.L.P.
At Viloria, Oliphant, Oster & Aman, L.L.P., we understand that divorce is a significant life event that requires compassion, clarity, and results. Our attorneys are proven professionals with over a hundred years of combined legal experience. We have successfully handled high-asset, high-conflict divorces and tirelessly fight for our clients’ legal interests. If you need legal assistance, call Viloria, Oliphant, Oster & Aman L.L.P. today at (775) 227-2280 to schedule an appointment or contact our office through our website.