New tax law affects alimony, could spur divorce surge

Some experts are predicting a surge in divorces this year as spouses paying alimony seek to take advantage of the deduction before it is eliminated.

Because of the new tax law, spouses paying alimony won’t be able to take a deduction while spouses receiving alimony will no longer have to report it as income, report PoliticoUSA Today and Morningstar. The alimony deduction has been in the tax code since 1942.

The change doesn’t affect people who divorce or sign a separation agreement before 2019, according to USA Today.

Spouses negotiating alimony payments may try to pay less when the change takes effect because there will be no tax savings, some experts told the newspaper. Brian Vertz, a family law lawyer in Pittsburgh, said women are more likely to be hurt by the change as they negotiate divorce terms.

“The repeal reduces the bargaining power of vulnerable spouses, mostly women, in achieving financial stability after a divorce,” Vertz told Politico.

USA Today cites U.S. Census Bureau statistics showing that 98 percent of the 243,000 people who received alimony payments last year were women.

Some lawyers question whether the change will affect prenuptial agreements that had called for payment of a set amount of alimony if there is a divorce.

Elimination of the deduction will lead to higher revenues overall for the government because the person who deducted the alimony was likely in a higher tax bracket than the spouse declaring the alimony as income, Morningstar says. Eliminating the deduction could also push the alimony payer into a higher tax bracket.

 

Source: www.abajournal.com