Does the New Tax Law Affect Alimony?

The new tax law will bring substantial changes to how alimony deductions are treated

The Tax Cuts and Jobs Act (TCJA) has sent tax experts and those effected by changes in tax laws scrambling. A complete overhaul in tax law, TCJA has far reaching implications for people across the U.S. One of the substantial changes TCJA includes relates to alimony. The change is so significant that divorce attorneys everywhere expect to see major changes in things like divorce negotiations.

Prior to TCJA, alimony payments which met specific tax law requirements would be deductible by the payer on his or her federal income tax return. This provided a great benefit to the payer as alimony payments can quickly add up. For divorces finalized before the end of 2018, this tax treatment of alimony will remain the same. For divorces finalized after 2018, things will look very different. TCJA eliminates the deduction of alimony payments. This is a huge change and one that could further complicate divorce proceedings and negotiations after the change takes effect. Few people are amenable to paying alimony. The opportunity to deduct alimony payments is a benefit that has helped divorce negotiations move along and avoid a contentious court battle. Additionally, the tax law change makes it more likely for a spouse to negotiate making lower alimony payments because the tax savings will no longer be available.

For now, however, the alimony tax deduction stands. If your divorce has already been finalized or your divorce will be finalized before the start of 2019, you will still have the alimony tax deduction available provided the payments meet certain specific requirements, including:

• The payments are made pursuant to a written divorce or separation instrument such as a divorce decree;
• The payments are made to or on behalf of the former spouse;
• The former spouses do not live in the same household;
• The former spouses do not jointly file tax returns;
• The alimony payment is not considered to be child support; and
• The payer spouse includes the payee spouse’s Social Security number on his or her tax return.