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How Alimony Payments May Change Under the Tax Cuts and Jobs Act

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For divorced and divorcing taxpayers, alimony will be treated a different way beginning next year. As part of the larger tax overhaul last year, the Tax Cut and Jobs Act eliminated the ability of alimony-payers to deduct their support payments each year on their federal taxes. Instead, the person receiving the alimony payment will be able to deduct it on their yearly taxes. In short, the income taxes on alimony payments will now be paid by the person paying the alimony, instead of the person receiving it.

Why is the Tax Code Changing Who Pays Taxes on Alimony?

According to legislators, changing the deductible nature of alimony payments was meant to increase tax revenue. The divorced spouse who is paying alimony will typically have a higher income, and thus the money is more likely to be taxed at a higher rate. This is in contrast to the current system, where the person receiving alimony will pay a lower tax rate because of their lower income. In addition to increasing revenue, federal lawmakers also reasoned that because the person paying alimony has more financial resources, then they are in a better position to pay the tax on that income. 

Will this New Tax Provision Apply to My Alimony? 

Importantly, the new tax treatment of alimony will not apply retroactively to divorce and separation agreements that have already been signed. In fact, the tax law does not change this provision until 2019 – therefore, the new tax treatment of alimony will only apply to any separation or divorce agreement signed on or after December 31, 2018. For divorced couples who choose to modify a separation agreement or spousal support signed before 2019, the old alimony provision will continue to apply unless the agreement explicitly states otherwise. 

Should I Change My Prenuptial Agreement? 

Married couples with a prenuptial agreement, which often includes a set amount of support or assets in the event the marriage ends, may want to revise their contracts. If the alimony was written before the new tax law, then the value of a monthly alimony payment may have significantly changed under the new tax provision. A prenuptial agreement will be most likely be affected in situations where there is a large disparity between each spouse’s income and in situations where the alimony payment is larger. 

How Else Could the Tax Law Affect Alimony Payments? 

For the most part, the new federal tax law will not change alimony payments or divorce law generally, which is largely comprised of state law. To receive alimony in Florida there will still need to be a valid divorce decree, and the payment will need to be made between two former spouses and typically in the form of cash.

Because the tax implications of an alimony payment may vary significantly depending on the financial circumstances, it is advisable to speak with a divorce attorney who is knowledgeable in Florida family law. To learn more, please contact HVW Law Group today.

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