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How the New Tax Code will Affect New Alimony Orders

March 14, 2018

In February 2018, President Trump signed the tax plan overhaul into law. This sweeping change eliminated the rules in place that govern how alimony orders are handled from a tax standpoint. These rules have been in place for the last 75 years.

 

Currently, the alimony an individual pays to his or her former spouse is tax-deductible. For the recipient, it is taxable income. Now, there are no taxes or

deductibles for alimony – for payers, there is no break for making these often substantial payments and for receivers, there is no obligation to pay taxes on the income like there is on their other income streams. This will mean significant changes to how courts calculate individual couples’ alimony orders and the sizes of the resulting alimony orders. Divorce lawyers across the nation are currently working to understand how this change will affect their clients as some advise the clients to wait until it goes into effect in 2019 to divorce and others advise their clients to try to complete their divorces by the end of this year.

 

 

Alimony Orders will Likely be Smaller

 

Many divorce lawyers worry that the new tax rules will make divorces more contentious and that overall, individuals who receive alimony will receive lower amounts because without the tax deduction to soften the payer’s burden, courts will likely require that they pay a lower amount to make up the difference. Divorced individuals will also now face higher taxes in general in 2019 and moving forward. Under the current rules, couples saved money through alimony payments because while the payer deducted the amount they paid out, the recipient is typically in a lower tax bracket, meaning less taxes for the couple overall.

 

Discuss how the change could affect your divorce with your accountant and an experienced divorce lawyer. This way, you can determine how to prepare for it financially and potentially, whether to put the divorce off until next year.

 

Couples will have to Plan for Different Post-Divorce Lives

 

The new law will only affect divorce orders entered after December 31, 2018. For an individual who has already gone through the divorce process, how alimony will be handled in a future divorce will be dramatically different than it was the first time

around. Under the current rules, the tax breaks associated with paying alimony are often used in alimony order negotiations.

 

Less money received through alimony could put additional financial pressure on recipients, which can impact their standards of living and reduce the amount of money they can put into retirement accounts.

 

Work with an Experienced La Crosse Divorce Lawyer

 

To learn more about the laws in place that affect alimony orders now and those that will go into place in the future, speak with an experienced divorce lawyer. Contact our team at Moen Sheehan Meyer, Ltd. today to schedule your initial legal consultation in our office. We can answer all of the questions you have and help you plan a productive strategy for your divorce.

 

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