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How do alimony payments affect taxes?

An individual’s financial future after divorce can seem uncertain. If the final agreement includes spousal support, whether you pay or receive it, that question is likely on the forefront of your mind.

Divorces in which alimony may be required that are finalized starting January 1, 2019 could be more complicated. While previous tax rules established that alimony payers would be able to write off their payments and recipients would have to include them as taxable income, the changes going into effect from the Tax Cuts and Jobs Act (TCJA) will alter this standard. 

 

 

Alimony is no longer taxable income

The TCJA, which Congress passed in December 2017, changed the rules so that the inverse is true: Alimony payers must now include their payments as taxable income and recipients are able to write them off.

The result of this change could be that many couples will be more aggressive when fighting over money. High-income earners may fight to pay less to the receiving spouse while lower-income individuals fight to receive as much as possible.

Another effect could be to previous spousal support agreements. If a modification agreement includes language that states it is subject to the new rules, those rules will apply.

Avoiding the pains of alimony

If you are going through a divorce and worried this tax change could negatively impact the process, consider reviewing other asset sharing options, such as awarding Individual Retirement Accounts or lump sum divorce payments. Depending on your unique financial situation, it could be more advantageous for a payer and a recipient.

No matter what you decide or how much income you are working with, you have options to create a fair and equitable division of assets while protecting your own financial health. 

 

 

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