Pursuant to the new tax law passed, Alimony/Maintenance will no longer be taxable income to the recieving party and no longer a tax deduction to the paying party on all orders under a divorce or seperation agreement entered after December 31, 2018. This change can have significant tax implications for parties going forward, as now the money will be taxed at the higher paying parties income bracket, instead of the lower paying parties bracket.
Not only does the change hurt families, as it diverts more money to taxes instead of people, but it will harm women. The Census Bureau reports that 98% of people recieving alimony/maintenance are women. Moving the taxes to the higher paying party, means that women will get less in support then they otherwise would have, and it will likely result in them getting fewer dollars then what they were getting after paying taxes. The New York Post gave an example of how this change affects the numbers
Imagine high-earning Spouse A now pays and deducts $30,000 a year in alimony. Spouse A’s income is federally taxed at 33 percent, so the deduction saves him $9,900.
Lower-earning Spouse B owes taxes on the alimony at a 15-percent rate, paying $4,500 instead of the $9,900 that would be due at Spouse A’s rate. The two have saved $5,400 between them, and Spouse A got a break that makes the payments more affordable.
If the courts take into consideration the amount of taxes saved/paid, in the example Spouse A pays $30,000 but saves $9,900 in taxes. For a net payment of $21,100. Spouse B recieves $30,000 but pays $4,500 on it, for a net payment of $25,500. With the change in taxes, Spouse B will likely now only get the $21,100 as support, since Spouse A would now have $9,900 less income to pay support with. This reduces Spouse B’s overall payments by $4,400. Of course some courts may leave the burden on the paying spouse to pay more, but that will still harm women, because that will increase litigation over the issue and increase the likilihood of a trial, as the paying spouse tries to avoid the additional expense. And more litigation means more attorney fees and less control over the outcome by the parties.
If you are contimplating a divorce, in which you suspect you may reiceve or have to pay alimony/maintenance, now is the time to start discussions on which tax treatment will best fit your situation.