Recent Tax Bill Affects Alimony Starting January 2019

If you haven't heard by now, the new tax bill reaches far and wide to affect individual's in all kinds of difficult situations---and that includes divorcing couples and the children involved.

On Jan. 1, 2019, Trump's rushed tax code to overturn tax deductions on alimony will go into effect.

Lawyers are already seeing a rise in divorce cases and they are urging any couples that are ready to divorce to hurry and start the process.  This is because from the moment the divorce case is initialized to the conclusion of the case, it takes many months.  In fact, it is rare if a divorce only takes six months to finalize. More specifically, "any divorce filed after June 30, 2018 will fall under the new Spousal Support rules", explained Orange County Family Law Attorney Julian Fox in an interview with a Fox8, a local new station.

What is the current law that will last through the end of this year?

In the past 76 years up to now, matrimonial attorneys have been able to arrange for high-paying support payments to the recipient, and payers were able to actually pay less for support payments after a great portion of the pay was deducted through their taxes.  Wealthy clients have long found that this deduction helped to make the payments bearable. The crazy thing about this method is that all parties benefited, at least somewhat.

What difference does the GOP tax bill really make?

Well, the difference can be HUGE.  Because after December 31st of this year,  the payer will no longer be able to deduct any portion of the alimony (also known as spousal support and spousal maintenance) pay. On the flip side of this, the recipients will no longer have to pay any income tax on these payments from their ex.

Now understand that although this may sound good for the recipient on the surface, this new change has great potential to cause payees more harm than good, and it could make negotiations with payers much more difficult. Many family lawyers have expressed concern that there will be an influx of divorce cases being taken to court. In California, judges and lawyers worked with a particular software to calculate alimony. Once the new law kicks in, the once crucial software will become ineffective.

Starting at the beginning of next year, the payer will pay 100% of all alimony payments.  It is likely that the negotiations will be tense as payees are faced with firm offers for less support from their ex spouse.  Furthermore, this money will not be able to be put into an IRA for savings since the money for this type of account must be from taxed income.

New Tax Law Affects All

It is important to remember that this tax bill does not just affect wealthy divorcées.  In fact, it affects families that would struggle greatly with an additional monthly payment such as $750/month on top of their own bills.  Also, divorce has been named among the top reasons a woman over 50 years old will find herself living in poverty. The party that pays child support (which is not deductible) may find themselves stuck paying both alimony and child support, and with no help from the government.  With this type of situation, it is likely that both parties will struggle as they transition out of married life and build their new life, especially if they have kids.  The truth is, the kids will struggle, too, as their one united household now breaks into two very different (and possibly poorer)  versions of what they called home and family.

It is common knowledge that 50% of American marriages end in divorce.  Perhaps more people will find it worthwhile to go ahead and write up a prenuptial agreement before marrying.  Or, if someone is already recently married and not close to divorce, then maybe they like the idea discussing and drafting up a postnuptial agreement with their spouse.  A family law attorney can help you through this process, as well.