Trump’s Tax Plan | What You Need to Know About Divorce Tax Deductions
The new year brought new tax laws, particularly for those going through a divorce. Lawyers were scrambling until December 31 to get divorces finalized so that those paying alimony would get their tax deductions.
Now that we are in 2019, tax deductions no longer apply to alimony payments, thanks to President Trump’s new tax code that will benefit the IRS. This is bad news for those who pay alimony since there is now no incentive to pay it. On the other hand, alimony is no longer taxable for those who receive it, so that is good news for recipients.
Nobody wants to pay alimony. Alimony has been mocked for decades. It is considered painful for payers, with the only respite being that it was tax-deductible. Because of this sole benefit, alimony was a good tool for helping couples to compromise and settle their divorce cases. That will no longer be the case under the new tax code.
Finalizing the Alimony Agreement
Did you get your divorce finalized before ringing in the new year? If so, hopefully, everything was done in accordance with the law. Keep in mind that the alimony agreement can not be temporary. It must have been finalized and included in the settlement or court order for it to be valid.
If you have a prenuptial agreement in place, examine it thoroughly. Many of these agreements have alimony provisions and they may be tied to tax laws that no longer exist. Keep in mind that only alimony is affected by the new tax code. Child support and other payments made in a divorce will be left unchanged for now.
How This Benefits the Wealthy
The paying spouse now has no reason to pay alimony if he or she is going to be taxed. Before 2019 rolled around, the payor could deduct as much as 39% of the alimony payments. Now that the tax breaks are gone, a person paying $20,000 in alimony will end up paying nearly $4,500 more in federal taxes.
While this fact alone will not benefit the wealthier spouse, the fact that there is no longer a tax deduction can help with negotiating a lower alimony payment. The payor now has the upper hand and can delay the divorce for as long as he or she wants—until the recipient spouse caves in and agrees to the other spouse’s terms. This leaves the recipient spouse with less money than he or she would have had the couple finalized their divorce before the ball dropped on New Year’s Eve.
Contact a Brooklyn Divorce Lawyer Today
If you are currently divorcing or considering it, make sure you understand the new laws and how they will affect you. It may be wise to compromise with the other spouse and come to an agreement that benefits both parties.
Are you ready to divorce but have concerns about your settlement? Brooklyn divorce lawyer Theodore Alatsas ESQ will aggressively help you get what you deserve in your divorce settlement. To schedule a consultation, call his office today at (718) 233-2903.