Under the Tax Cuts and Jobs Act of 2017, the tax deduction for alimony payments goes away for divorces settled after Dec. 31. That change has led to a significant incentive for some couples to reach an agreement quickly, and divorce attorneys say they're working overtime for clients who are scrambling to get to court in the next few weeks.
What are the details?
The alimony tax deduction has a major impact on some divorce negotiations, because the party paying spousal support may have an incentive to agree to dishing out a higher stipend because of the tax benefits. With that deduction disappearing, individuals paying maintenance in divorces filed next year and beyond will be taking a major hit, and Uncle Sam will be keeping the proceeds.
"The pressure is huge," matrimonial attorney Lisa Zeiderman told USA Today on Tuesday. "Once the tax deduction is gone, there will be less money for the family unit. I've had emails and calls all morning from people who would like us to negotiate and set deadlines and put pressure, in some way, on their spouses, so we can get a deal done."
Alimony recipients currently pay income tax on the financial support they receive, but after the first of the year, they will no longer be taxed on the maintenance funds. That could give leverage to would-be alimony recipients in current negotiations.
"Some spouses may think they have an advantage by delaying," family law attorney Brian Vertz told Politico. "The payer wouldn't have a tax deduction, it's true, but that won't necessarily motivate the recipient to demand less."
In an interview with the Chicago Tribune, divorce attorney and CPA Claire McKenzie said the looming deadline could mean a lot of folks will be making a mad dash to divorce court.
"I think you're going to see a rush of people getting it done in December — right down to the wire," she said.
According to Politico, alimony has been tax deductible since 1942, with lawmakers long believing "it was unfair to tax people on the alimony they paid when the money was not available for them to spend."
But House Ways and Means Chairman Kevin Brady (R-Texas) defended the new rules, telling the outlet, "This is one of the many provisions of the law that removes special rules applicable only in certain circumstances in order to help simplify the code and reduce tax rates for all Americans."