How Does the 2018 Tax Change Affect Alimony?

Is alimony taxable?

How Does the 2018 Tax Change Affect Alimony?

In December 2017, a new law affecting alimony across the country was enacted. The changes went into effect on December 31, 2018. Read on below to find out more about what the changes are and why they matter to your alimony case.

What are the Changes?

The Tax Cuts and Jobs Act (TCJA) made a few changes to how alimony payments are taxed in America. Before the change, alimony payments were tax deductible for the supporting spouse. The dependent spouse had to count money received as income. Thus the dependent spouse had to pay taxes on the money he or she received and the supporting spouse received a tax break.

For anybody entering into an alimony agreement on or after December 31, 2018, those tax rules no longer apply. Instead, the supporting spouse cannot count the payments as tax deducible. And the dependent spouse doesn’t have to count the money received as income anymore.

Why Does it Matter?

At first glance, this might seem like good news for the dependent spouse. But tax deductions made alimony payments more affordable. They increased the supporting spouse’s “spending power” so to speak. Without that increased “spend power,” we expect negotiating alimony will become much harder. Without a way to offset payments, supporting spouses won’t want to offer as much in alimony.

If negotiations do not work, the dependent spouse can always have his or her alimony claim heard in court. Judges will still have discretion in awarding alimony amounts. But judges have to look at the supporting spouses “ability to pay.” Not having that tax break anymore will definitely affect a spouses ability to pay.

On a side note, if you entered into an alimony agreement before December 31, 2018, the new rule does not apply to your situation. But if you make any modifications to the agreement after December 31, 2018, you can elect to have the new rules apply.

Ultimately, the new law creates even more complexities in North Carolina alimony cases.  That’s why it’s important to speak with a knowledgeable attorney about these issues.  Contact us today for more information about your alimony case.

 

%d bloggers like this: