Unless you’ve been in quarantine at Guantanemo Bay or otherwise living under a rock the last few months, you are aware of the new federal tax bill, ie. the Tax Cuts and Job Act (“TCJA”) passed by Congress and signed into law by President Trump at the end of December.
If you are looking at getting a divorce or are already divorced and looking at a possible modification of spousal maintenance in the near future, the provisions of the TCJA eliminating the spousal maintenance deduction may have a significant effect on your divorce or modification and most importantly, your pocketbook.
The main elements of the change in the tax treatment for spousal maintenance under the TCJA are:
- In connection with either any settlement agreements signed or divorces finalized on or after January 1, 2019, any spousal maintenance or alimony payments awarded and ordered WILL NO LONGER be tax deductible for the paying spouse or taxable to the receiving spouse.
- Spousal maintenance awards and payments in connection with any settlement agreements signed and divorces finalized prior to January 1, 2019 will still be treated under the old rule with payments deductible by the paying spouse and taxable to the receiving spouse as long as they remain unmodified.
- BUT, after January 1, 2019, any modifications thereafter to spousal maintenance awards entered prior to that date (and exempt from the elimination of the deduction) WILL BE effected by the terms of the TCJA and WILL NO LONGER be tax deductible by the paying spouse or taxable to the receiving spouse.
So, in summary, if you want to preserve the tax deduction, your divorce or modification of current spousal maintenance orders needs to be finalized and completed by the end of the year, ie. December 31, 2018, or it will be gone forever.
In our upcoming blogs, we will discuss the potential benefit, loss, and practical effect the elimination of this tax deduction may have on you and negotiations over spousal maintenance whether or not you are the one paying spousal maintenance or the one receiving it.
It is not a simple “black/white” issue, and will have significant ramifications on your ability to resolve spousal maintenance and alimony issues without facing the uncertainty and expense of trial.
Going through a divorce and understanding the effects of the latest legislation on your future income and support payments can be a daunting task. Having an experienced attorney to advise and assist you with navigating these issues is essential to protecting you, your pocketbook and your peace of mind during a divorce.
If you would like to work with one of our experienced divorce attorneys, please call OWENS & PERKINS at (480) 630-2464 to schedule your free 30 minute consultation.