How does the new spousal support tax law for 2018 affect couples currently divorcing or considering a divorce? On Friday, December 22, 2017, President Trump signed the new tax reform bill into law. The changes went into effect on January 1, 2018.
The tax law preceding the new tax reform bill of 2018 made payments of spousal support (alimony) deductible to the payor and taxable to the recipient.
The prior law held: “Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony for federal tax purposes. Alimony is deductible by the payer spouse, and the recipient spouse must include it in income.”
Spousal Support Tax Law Change
Under the new law, spousal support is no longer tax deductible to the payor nor is it taxable to the recipient. While the new law goes into effect on January 1, 2018, this change will not affect anyone who is divorced prior to December 31, 2018. Consequently, parties who divorce prior to that date will be “grandfathered” in to the old law regarding tax consequences of spousal support. There will be no effect on those parties who divorced prior to December 31, 2018.
The number of payors of spousal support who took the support deduction on their federal tax returns in 2015 was approximately 600,000. While nothing will change for them, the payors who divorce after December 31, 2018 will no longer have the benefit of deducting their support payments.
The new spousal support tax law rules won’t affect anyone who divorces or signs a separation agreement before 2019, but undoubtedly this new spousal support tax law will change the landscape of divorce cases, family law litigation and settlements for years to come in terms of how parties approach spousal support. Continue reading →