How can spousal support changes to the new 2019 tax law affect you? For anyone looking to get divorced in the near future, you may want to get things settled in the very near future—before the end of the year, in fact. That is because changes in federal tax laws are going to have a significant impact on anyone who receives or pays spousal support, potentially making negotiations for these payments significantly trickier.
Factors Considered When Determining Alimony
A number of issues must be weighed as the court makes judgments regarding spousal support payments. Naturally, disparate incomes are a central factor. Just a few of the many other items considered include:
- The length of the marriage;
- The ability of the lower-earning spouse to obtain employment without having an adverse impact on minor children;
- The amount of support one partner gave another in the pursuit of education and/or career goals;
- The health of the parties involved;
- The tax consequences of any settlement agreement.
How Important Are the Upcoming Spousal Support Changes?
The implications of the new tax laws will be felt by all individuals paying or receiving alimony payments, and is expected to be be quite significant for couples who jointly earn between $60,000 and $500,000. Here is why:
For the past 75 years, alimony payments were deductible for payers, and recipients were expected to claim the money as income. Since the higher-earning spouse received a deduction, Uncle Sam collected taxes based on the lower tax bracket of the recipient. The couple jointly kept a bigger chunk of dollars earned with this arrangement. Starting in January 2019, all of that changes, and the payer will be unable to deduct alimony payments, making that money taxable at the earner’s higher tax bracket rates.
Spousal Support Changes – The Numbers Tell the Story
So, let us say in 2018, Spouse A, who is in a 33% tax bracket, is paying $30,000 in alimony. The deduction saves him or her $9,900.
Spouse B, who receives that $30,000, is in only a 15% tax bracket. The tax burden on alimony income is $4,500. The couple has jointly saved $5,400 that would otherwise be going to the federal government. In 2019, Spouse A will be paying the taxes on that $30,000, meaning there will be $5,400 less in the joint coffers to divide between the divorcing spouses.
Do not be fooled into thinking that Spouse B will be making a killing by keeping that extra $4,500. Experts predict that alimony negotiations will take all of this into account, meaning each spouse will take a hit. Presumably, a 2018 alimony requirement of $30,000 will be significantly less in 2019 because the government’s chunk of the money will have to be factored in. Continue reading →