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The end of 2018 is rapidly approaching.
In December 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 into law.
The alimony tax law will take effect for all divorce agreements and Judgments of Divorce obtained on or after January 1, 2019.
Therefore, divorcing spouses who have not signed a divorce agreement or obtained a judgment of divorce by December 31, 2018 will be subject to the new tax law.
This article will explain the impact of the new tax law on alimony.
What is the Alimony Tax Change and Who is Affected?
The new alimony tax changes are summarized as follows:
1. Alimony will no longer be tax-deductible for federal income tax purposes.
Therefore, if you plan to be divorced on or after January 1, 2019 and you anticipate paying alimony, you won’t be able to deduct your alimony payments on your income tax returns.
2. Alimony will no longer be taxable as income for federal income tax purposes by those who receive it.
If you plan to be divorced on or after January 1, 2019 and you anticipate receiving alimony, you won’t need to pay taxes on your alimony.
3. These changes apply to any “divorce or separation instrument.”
These are defined essentially as a Judgment of divorce or Marital Settlement Agreement executed after December 31, 2018.
Therefore, if you’re already legally divorced in New Jersey, these changes wouldn’t apply to you.
Be aware, however, if you modify your divorce agreement with an alimony provision, these alimony tax changes could apply to you if the modification expressly provides that the new tax changes apply.
What Do the Alimony Tax Changes Mean for My Current Alimony Payments?
If you’re already divorced and receiving alimony, your alimony will still be taxable as income for you.
If you’re already divorced and paying alimony, you can continue to deduct your alimony payments on your income tax returns.
How Will Alimony be Determined Under the New Alimony Tax Law?
Under the old alimony tax law, the amount of alimony is determined in part by considering the gross incomes of each spouse.
Under the new alimony tax law, however, the after-tax income of each spouse would need to be considered.
This means that family law attorneys and judges will need to ensure the accuracy of the parties’ respective after-tax incomes.
The bottom line is in all likelihood, alimony amounts will be much lower to account for the lack of available tax deduction.
Please read our previous blog on the alimony tax law changes here.
In the meantime, by consulting with a competent New Jersey divorce and family lawyer, creative options can be generated to structure alimony that meets your financial needs and goals for the future.
Please contact me to schedule a consultation for substantive legal advice and a personalized strategy for your divorce or separation.
