Has the Tax Cuts and Job Acts taken the incentive away for divorcees to pay alimony?
Significant elements included in the legislation include a reduction in tax rates for both individuals and businesses. The bill also increased the standard deduction and family tax credits.
However, what the government gives, it also takes away. Specifically eliminated are the personal exemptions that reduced the benefits that come with itemizing deductions. For couples considering or pursuing divorce, they will feel a significant financial impact.
Signed into law at the end of 2018, the act replaces a previous statute where higher-earning spouses could deduct spousal support payments on tax filings. Conversely, the recipient had to claim it as a part of their taxable gross income.
Simply put, for divorces finalized in 2019 and beyond, alimony will no longer be deductible.
With the clock ticking, spouses are feeling the pressure to sign off on alimony agreements prior to enactment of the new law.
Payers no longer see any benefits to paying spousal support. Additionally, the common practice if splitting financial support payments between spouses and children will likely change. Essentially, it shifts the majority of money away from alimony with more going to child support to secure the tax credit.
Many see the new law as opening a floodgate of pressure for new and existing marital dissolutions to be finalized while financial benefits still exist.