The country's Tax Cuts and Jobs Act passed in 2017 goes into effect on Jan. 1, 2019. TCJA will significantly change the financial landscape of divorce planning. A significant impact occurs for those who pay and receive alimony.
TCJA specifies the alimony payor can no longer use alimony as a tax deduction. The IRS cannot tax the recipient's alimony as income.
Will TCJA affect those who divorced before 2019?
Tax advantages under the original divorce laws will not change existing alimony or modifications of terms established before 2019. A stampede to divorce courts took place near the second half of 2018. Divorcing couples attempted to slip in under the wire and lock in tax benefits before TCJA began.
The answer to the question of whether the law will affect pre-2019 divorce arrangements is yes and no. For those who pay or receive alimony, the good news is that TCJA protects the tax advantages of spousal support or modifications made before 2019. The not-so-good news is that any modifications made after 2018 will be subject to the new TCJA laws.
How will TCJA impact a new 2019 divorce?
Time will tell how tax changes to alimony affect the payor and recipient, but predictions are disheartening. Pundits expect that, with the tax advantage loss, the payor will lose motivation to pay a reasonable alimony amount. What might have been an amicable divorce in 2018 could change in 2019. The payor will now have motivation to fight for a lower alimony payment to offset his or her tax deduction loss under the new law. Arguments over alimony could result in protracted, acrimonious negotiations.
What are intangible costs to families under TCJA?
The number of uncontested divorces may sharply decline, clogging the court system and creating unnecessary life-long hostility between two people who must co-parent their children.
Innocent children could be further traumatized by their parents' animosity. Whereas civility could govern parenting duties post-divorce, an adversarial relationship may leave deep-seated bitterness and make co-parenting a distressing ordeal for everyone involved.
Wise couples who wish to spare their children further emotional pain may want to consider alternative methods of asset division or explore other legal options to circumvent the need for alimony.