2019 Ushers in New Tax Treatment of Alimony by Sandra Perez, CPA/ABV/CFF, CFE
Posted on February 28, 2019 by Sandra Perez
Married couples considering a divorce in 2019 should first meet with their tax advisors and accountants to ensure their settlement negotiations reflect the way in which the new federal tax law treats alimony payments beginning this year.
For more than 75 years, alimony was treated as a tax deduction for the payor and taxable income to the recipient. This changes for all divorce decrees and legal separations executed after Dec. 31, 2018, and for future modifications to spousal maintenance orders that were settled before Jan. 1, 2019.
Under the Tax Cuts and Jobs Act (TCJA), the alimony deduction is eliminated and the tax burden for spousal support shifts from recipients of those payments to the paying spouse, who is typically on a higher tax bracket. As a result, families will pay more money to Uncle Sam and have less to divide amongst themselves.
Couples in the midst of settlement negotiations must address the repeal of the alimony deduction within the framework of the other provisions of the TCJA, including lower tax brackets, increased standard deductions and caps on state and local taxes (SALT). All of these changes will impact the equitable division of marital property.
As the government works to develop guidance for applying the new tax law, couples considering a divorce should recognize that the entirety of the law is subject to modification and even repeal under a new presidential administration or a change in the congressional majority. As a result, it behooves taxpayers to consult with professional advisors to understand the law in its current state and address in divorce settlements any potential changes that may impact former spouses’ future income and tax liabilities.
About the Author: Sandra Perez, CPA/ABV/CFF, CFE, is director of the Family Law Forensics practice with Berkowitz Pollack Brant, where she works with attorneys and high-net-worth individuals with complex assets to prepare financial affidavits, value business interests, analyze income and net-worth analysis and calculate alimony and child support obligations in all areas of divorce proceedings. She can be reached in the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000 or via email firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of the law and subsequent guidance issued by the Internal Revenue Service.