As a result of the release of the “Tax Cuts and Jobs Act“, Congress has now significantly changed how alimony payments are handled come tax-time. Critically however, this change in tax law will only affect alimony agreements which are entered into after December 31, 2018 (that is to say, any alimony agreements which are already in existence, or entered into before 2018 ends will not be affected by these changes).
If you are going through a divorce or considering a divorce, this change in how alimony is taxed by the Government may give you an added incentive to make sure your divorce is finalized before the year is up, or, if you expect to receive alimony payments, you may want to wait to finalize your divorce until 2019.
Below is a summary of how both the payor of alimony and the recipient of alimony can expect their taxes to be affected when this new law officially takes affect if their divorce is finalized on any date after December 31, 2018.
The New Tax Law for People Paying Alimony, Madison Alimony Attorneys
Currently, people who are making alimony payments to a former spouse are allowed to deduct those same payments from their income, before being taxed (presuming the alimony obligation was agreed-upon or court-ordered as tax deductible for the payor and taxable to the payee). For example, if a person who is earning $100,000 is making yearly alimony payments of $25,000 and this is encompassed into an order by December 31, 2018, they would actually be able to deduct their alimony payments from their income before paying taxes, i.e. the payor in this case would only pay income taxes on $75,000.
However, when the Tax Cuts and Jobs Act comes into affect in 2019 if the parties reached their agreement after December 31, 2018, that same payor would instead pay income taxes on their full salary of $100,000 regardless of whatever amount of alimony they may be paying.
Clearly, this represents a significant change for the financial security of alimony obligors (the person making the spousal support payments). If you are going through a divorce or considering a divorce, and expect to have to pay some amount of alimony as part of your divorce settlement agreement, it is very much in your favor to resolve your divorce sooner rather than later, specifically before this new law takes affect. Call our office today to speak with one of our experienced Madison alimony attorneys in a strategic planning session regarding your options, next steps, and how exactly we can help you to protect your financial future and security.
The New Tax Law for Alimony Recipients, Randolph Spousal Support Lawyers
When it comes to people receiving alimony payments, the new tax law will have the opposite affect as it will for those making alimony payments.
Currently, alimony obligees (the people who are receiving alimony) have to declare whatever alimony they are receiving as part of their income (again, presuming this was part of the parties’ agreement or was ordered by the court). So, for example, if a person is earning $30,000 but is also receiving yearly alimony payments of $25,000, that same person would have to pay income taxes on those two amounts combined ($55,000).
However, when the new alimony tax laws take affect, people who receive alimony payments but enter into an agreement or court order regarding alimony after December 31, 2018 will NOT have to declare whatever alimony they are receiving as income. This means the person receiving alimony would only pay income tax on whatever their own salary happens to be, regardless of how much they receive in alimony.
Just as this new law represents a significant change to alimony payors, it represents an equally significant change for people who are receiving alimony payments.
Contact Our Morris County Alimony and Spousal Support Attorneys Today
To reiterate, only alimony agreements or court orders which are entered into after December 31, 2018 will be affected by the changes discussed above. Any agreements or court orders which already exist, or are entered into during 2018 will not be affected.
However, such a drastic change to both party’s incomes may warrant a litany of alimony modification petitions based on changed financial circumstances. Only time will tell whether or not courts accept this specific circumstance as significant enough to modify existing alimony agreements, and the extent to which modifications are sought based on this change.
If you are going through a divorce or considering a divorce, it is highly recommended that you retain the counsel of an experienced Morris County divorce attorney in order to better understand your rights and options, to protect your rights as a parent, and to ensure your individual finances as well as your family’s are secure moving forward.
At Jacobs Berger, our attorneys have extensive experience successfully resolving divorces and their related issues of child custody, child support, alimony, and the division of assets for clients in towns across New Jersey and Morris County, including Madison, Randolph, Morristown, Denville, Dover, Morris Plains, East Hanover, Florham Park, Tewksbury, and more.
To speak with a member of our team today in a strategic planning session regarding any kind of divorce or family law matter you may be facing, please contact us online, or through our Morristown, NJ office at (973) 710-4366.