Are you contemplating
divorce? If you’re seriously thinking about ending your marriage, you may
not want to delay until after the New Year. If you believe you will be
paying or receiving spousal support, you’ll be very interested in
learning about the changes to the tax laws that go into effect on January
1, 2019 –
As of 2019, everything tax wise is going to change in regards to
spousal support. For many years, it’s been tax deductible for the person who pays
it and the receiving spouse has been paying income tax on it but as of
January 1, 2019, those old rules will no longer be.
Currently, all spouses who finalize their separation and divorce documents
by December 31, 2018, the old rules will apply. They’ll be “grandfathered
in.” Meaning, the paying spouse shall deduct his or her spousal
support payments while the receiving spouse will pay taxes on it until
the payments end.
New Laws Go Into Effect January 1, 2019
But for all spouses who finalize their separation and divorce documents
on or after January 1, 2019, the new rules will take effect. Under the
new tax laws, paying spouses will no longer deduct their spousal support
payments from their taxes, and the receiving spouse will no longer pay
income taxes on it. Meaning, the one who receives spousal support will
not declare it as income any longer.
In many divorce attorneys’ opinions, the new tax laws will make it
harder for spouses to negotiate. What will likely happen is paying spouses
will want to pay less spousal support because they’ll no longer
be entitled to the tax benefits.
Most of the time, the payer is a man and he’s more negatively affected
than the woman because he won’t have the tax benefit. In the big
picture, if the courts move to order much smaller amounts because of the
tax implication, there won’t actually be much of an effect on the
paying spouse. Our gut instinct is that the judges are going to look at
the numbers and won’t consider the tax implications like they did
with the old law.
If you’re a high-net worth individual and you’re confident
you’ll be paying spousal support, and if support will put you into
a lower income bracket, it may be to your advantage to finalize your divorce
before the end of 2018 instead of putting it off.
Updating Your Estate Plan After Divorce