If you are in the middle of the divorce process or contemplating divorce – you may want to consider acting sooner rather than later to finalize your divorce. Under the new Tax Cuts and Jobs Act, the payors of alimony will no longer be allowed to claim alimony as a tax deduction. This new law will not go into effect till after December 31st, 2018; so, if a couple completes their divorce and receives a signed divorce decree by a Judge before the 12/31/2018 deadline, they will still fall into the old tax system where the alimony-payor can claim a tax deduction, and the alimony-recipient has to claim the money as income.
Since the average divorce takes between 6 to 10 months to finalize, couples who are hoping to meet the December deadline should already be engaged with a divorce attorney. To be grandfathered-in to the old tax system, divorce settlements must be finalized (which means signed by a judge), by the deadline, and legal matters still in the process of negotiation will not qualify. Many counties require a 30-day waiting period after a settlement agreement is signed, before a judge will sign the documents; thus, settlement agreements should be in the hands of a Judge no later than early November 2018 in hopes of meeting the December 31st, 2018 deadline.
Alimony is no longer considered taxable income for the recipient
The new tax bill also relieves alimony recipients from claiming it as taxable income. So, it could be that alimony-payors will be rallying to get their divorce finalized by the deadline, while alimony-recipients will try to drag proceedings past the end of the year.
“I think these kinds of tactics may be somewhat short-sited on the part of the alimony recipient, since the new laws may actually encourage the alimony-payor to be more willing to make additional compromises with the hopes of meeting the deadline,” says Sara Khaki, Founding Attorney of Atlanta Divorce Law Group. “The new tax laws may reduce the overall amount of alimony that is paid since the tax benefits of alimony are no longer realized by the payor; thus, the potential alimony-recipient may be able to get more alimony if they settle their divorce in time to fall within the old tax system.”
The bottom line impact of the new tax laws on alimony is that divorcing couples will now have less cash to fight over during their settlement talks. Losing the tax deduction of alimony means more money will go to the government and there will be less cash in the household to split up; this means alimony-payors will be less likely to pay as much spousal support as before. Therefore, if you are considering filing for divorce or are in the middle of a divorce, seek a divorce attorneys’ advice immediately to determine how this will impact your financial situation. Your attorney can help you avoid the new tax laws by finalizing your divorce decree and receiving a Judge’s signature prior to the December 31st, 2018 deadline.