Under the Tax Cuts and Jobs Act, starting January 1st of 2019, alimony payments will no longer be deductible from a payor’s income, nor will they be taxed as income to the payee.
This change represents a dramatic change in the federal tax law as it pertains to divorcing couples. Experts have speculated that the change in the tax law could lead to several consequences, ranging from a race to resolving divorces before the end of 2018 to people simply no longer initiating actions to dissolve their marriage. In reality, these forecasts may be extreme. However, for those whose divorces involve alimony claims, also known as spousal maintenance, there will be changes.
A Negotiating Tool That Is No Longer Available
According to an article from CNBC, some experts consider the alimony deduction an important negotiating tool for divorcing couples. The fact that the payor could deduct alimony payments was often used to engage in sensible tax planning and facilitate negotiating settlements. These experts believe that, without this as a tool for negotiation, settlements may be harder to reach and divorces may be messier, more often leading to courtroom battles.
Is This Change Really Cause For Alarm?
While new approaches will certainly be necessary to account for the alimony tax change, this shift may not be the cause for alarm that some believe, particularly considering that permanent alimony is becoming increasingly rare in Connecticut cases.
Further, the alimony deduction is far from the only negotiating tool available during a divorce. Experienced, sophisticated and skilled lawyers have a wide variety of tools and approaches at their disposal to guide their clients through negotiation to reach a favorable settlement, and these options vary dramatically from case to case depending on the unique facts concerning a family’s finances.