Is Spousal Support Still Tax-Deductible?

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 – huge changes.

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.

Related: Updating Your Estate Plan After Divorce