Will 2018 See Couples in a Mad Dash to Divorce Court?
Under current tax law, a former spouse who pays spousal support may deduct the payments on their taxes, provided the payment meets these requirements, according to the California Franchise Tax Board:
- Payments are made in cash, or via check or money order.
- The divorce or separation instrument does not specify that the payment is not alimony.
- You and your former spouse do not live in the same household when you make the payment.
- You have no liability to make any payment after the death of your spouse or former spouse.
- Your payment is not treated as child support.
The new tax law reverses the 75-year-old tax deduction, and those who finalize their divorces in 2019 and on will no longer be able to deduct alimony or spousal support payments when filing their taxes.
But those who lock in that divorce in 2018 will be able to deduct spousal support and alimony payments for as long as they are required to pay them.
This change is good news for those who receive alimony payments. In 2019 and beyond, those payments no longer have to be reported as income on taxes.
Some argue that this makes good sense, considering alimony’s purpose, said San Diego family attorney John Griffith. “These payments are designed to assist the lower-earning spouse in maintaining the same standard of living he or she experienced while they were married.
The new law shifts the tax burden to the person who pays the alimony, which will lead to more money being paid in taxes overall, according to Morningstar. The government estimates the change will raise $8.3 billion over 10 years.
“The reason is that, presumably, the higher-income spouse is the one paying the alimony, and the higher-income spouse is likely in a higher tax bracket,” the Morningstar article stated.
However, there is concern that beginning in 2019, alimony payments will become smaller as a result of this shifting of tax responsibility.
Divorce rates declined each year between 2011 and 2014, according to Centers for Disease Control and Prevention data. 2011 saw 877,000 divorces, compared to 813,000 in 2014.
“It will be interesting to study divorce rates over the next couple of years to see if the tax law resulted in an increased number of divorces,” Griffith said.
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