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How does the new tax law affect spousal support?

If you are a divorced Tennessee resident who pays or receives spousal support, a/k/a alimony, you may have heard rumors that the Tax Cuts and Jobs Act that Congress passed late last year and President Trump signed into law on Dec. 22, 2017, changes how those payments are treated with respect to federal income taxes. These rumors are true. While the new law does not affect the income tax returns you are in the process of preparing to file on or before April 15, 2018, everything could change for you next year.

The new law eliminates the so-called alimony deduction for those paying spousal support to their ex-spouse. It also eliminates the requirement that spousal support recipients must claim their payments as income. However, the new law does not apply to all such payors and payees.

When the new law takes effect

While most of the new law’s provisions took effect on Jan. 1, 2018, the alimony provisions do not become effective until Jan. 1, 2019. In other words, they apply to all divorces and legal separations finalized after Dec. 31, 2018.

Considerations for alimony payors

If your divorce or separation is not yet finalized and you are the spouse who will be paying alimony, it is in your best interests to get it finalized this year. Why? Because alimony payments made pursuant to a divorce or separation agreement finalized before Jan. 1, 2019, are still deductible in the future. In other words, the old law applies. However, to ensure that it applies to you, your divorce or separation document(s) must contain the following provisions:

  • Alimony payments go to or on behalf of your ex-spouse.
  • They must be cash or a cash equivalent.
  • They must be called spousal support or alimony payments.
  • They must not go toward child support.
  • They must cease at a specified future time or upon your ex-spouse’s death, whichever occurs first.

Considerations for alimony recipients

If you are the spouse who will be receiving alimony, it is in your best interests to delay finalizing your divorce or legal separation until after Jan. 1, 2019. Why? Because that way you will not have to claim your support payments as income on future federal tax returns.

Divorce is difficult under any circumstances. Adding the new tax laws to the mix of any divorcing couple’s issues and disagreements only makes matters worse since it puts the spouses’ interests in direct opposition to each other. Divorce experts predict that 2018 will be a “wild year” for divorces. For potential alimony payors the goal is to either finalize the divorce this year or reduce the payment amount. For potential alimony payees the goal is to either increase the payment amount or delay finalizing the divorce until next year. Whichever you are, your best strategy is to hire an aggressive divorce attorney. 

 

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Mathis, Bates & Klinghard PLLC
412 Franklin Street
Clarksville, TN 37040

Phone: 931-444-3153
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