Tax Reform: Is It Really Benefiting YOU? A Discussion of How the Disappearance of the Alimony Tax Deduction Will Impact Paying

The first half of the year is over and that fact has never been more important to divorcing couples than it is this year, 2018. Why? Because last year, Congress passed a sweeping tax reform law which changes the financial landscape for couples who are currently divorcing or will file for divorce in the future. Simply put, if you are the higher-earning spouse, your window of opportunity for settling your spousal support or alimony-involved divorce case by December 31, 2018, is quickly shrinking.

As of January 1, 2019, spousal support and alimony payments agreed-upon or imposed by the court will no longer be tax deductible for the paying spouse. On the other hand, maintenance or alimony recipients who obtain their awards after December 31, 2018, will not have to report same as taxable income.

For decades, spouses who earned substantially more than their former spouse had the ability to write-off the spousal support/alimony they paid on their taxes. The receiving spouse had to report the funds they received from their former spouse as income upon their tax returns and be taxed at the applicable ordinary income rate. This ability gave the paying spouse a discount upon his or her tax bill and subjected the receiving spouse to being taxed by the IRS.

This new change strikes a substantial financial blow to the paying spouse and, in return, will subject receiving spouses in states — such as New Jersey—which do not have a spousal support/alimony calculator to more downward negotiation attempts by the paying spouse during their divorce proceedings.

In essence, paying spouses must have a strategy in place which enables them to settle their divorces and sign an agreement by December 31, 2018. The most important thing, then, is that the agreement between you and your spouse is signed by December 31, 2018. In states such as New Jersey, where are the judgment of divorce is signed at your last court appearance, you can also ensure that you are divorced by December 2018. However, in states with a longer finalization process, like New York, your aim is to finalize an agreement.

You have more control over the timing if you are in a negotiated divorce process than if you are in a contested divorce relying upon the court to resolve your case. The danger zone with respect to this deadline is more pressing for people who are setting their cases up for trial to be heard by a judge. This is because, as a litigant, you have no individual control over the judge’s schedule or his/her ability to render a final decision in your case by December 31, 2018.



This new legislation will impact countless families and, frankly, if your divorce is not already filed, you are likely cutting it too close to benefit from the old law now. That said, make sure to get the legal advice you need on your road to turning Fear Into Power When Happily Ever After Fades Away.