How the Federal Tax Cuts and Jobs Act Affects Divorcing Couples

If you’re currently in the midst of a divorce or considering one, it’s important to know how the Tax Cuts and Jobs Act (TCJA) affects alimony, or spousal support. The new law was signed by the president on December 22, 2017, but the rules affecting support didn’t take effect until January of this year. Before the TCJA became law, alimony payments were tax deductible for payors and taxable income for recipients.  The TCJA changed that.

If your divorce is final after December 31, 2018, you can no longer deduct alimony payments on your federal income tax filing.  That’s bad news for those who must pay spousal support, who usually earn more income than those receiving support. Here’s an example to put this into perspective: if your income was in the 35 percent tax bracket before the new law went into effect, you could save $3,500 in federal income tax for every $10,000 in alimony payment deductions. If you had to pay tax on support payments, and you were in a 10 percent tax bracket, you would need to pay only $1,000 on every $10,000 received. The new law completely eliminates this benefit for divorced couples.

While alimony recipients benefit from the changes in the law because they no longer have to declare those payments as income, the overall result may be less promising.  Payors must now pay a larger percentage of support than before because they can no longer deduct those payments. That means they may be more likely to seek support modifications that could eventually result in recipients getting less support than they once did.  It remains to be seen what the overall effect of the new tax law will be on divorced couples going forward.

A divorce becomes final on the date the judge signs the divorce decree. Therefore, if your divorce decree is dated on or before December 31, 2018, TCJA does not apply. If you pay support, you can continue to deduct your alimony payments. If you receive alimony, you must report those payments as income. It is important to note that pre-2019 divorce or separation agreements can be modified to apply the new tax laws. However, the modification must specifically state that the TCJA treatment of alimony applies.

If you’re considering divorce, an experienced Florida divorce attorney can advise you on the tax implications of spousal support and other matters. To learn how The Law Offices of Lawrence S. Katz, P.A. can help, call us at 305-670-8656 or contact us online to arrange a consultation at our Miami office.