Division of assets, possible child support, alimony, child custody, emotions - divorce can be a complicated, stressful and painful process. For 2018, now add taxes and timing into the mix.
The Tax Cuts and Jobs Act (TCJA) is going to change the tax treatment of alimony payments. Prior to the passage of the TCJA, alimony was an above the line tax deduction by the payor, while the recipient was required to report the payments of taxable income. During negotiations this often served as an incentive for higher taxed spouses to structure the divorce by providing more deductible alimony to their lower taxed spouse. The TCJA will change that.
Under the TCJA, any divorce finalized after December 31, 2018, alimony will be non-deductible to the payor and non-taxable to the recipient. Any divorce finalized on or before December 31, 2018, alimony will be subject to the old tax law rules, thus alimony will continue to be deductible by the payor and taxable to the recipient.
To those currently in the process of finalizing or contemplating a divorce, whether you want to act quickly to finalize the divorce may be dependent upon which side of the payment stream you are on. If you are making payments, it may be in your best interest to finalize the divorce by December 31, 2018 to preserve the deduction for the alimony payments. If you will be receiving payments, it may be in your best interest to finalize the divorce in 2019, so the reciept of alimony payments will not be taxable. Which ever side you are on, awareness of the December 31 date is important. Know that simply filing for divorce before the end of the year is not enough and the divorce papers must be signed on or before December 31, 2018 to qualify.
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Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club