President Donald Trump signed the final tax bill, also known as the Tax Cuts and Job Act, on December 22, 2017. The new bill has a significant impact on mortgages, real estate, health insurance, childcare, and a number of other areas. When it comes to divorce, the new tax bill has divorce lawyers and divorcees rather confused.
For the past 75 years, the taxes on alimony have always followed one rule. The partner who pays the alimony does not have to pay any taxes on it while the recipient has to take care of the taxes that are levied on the alimony. But it seems as though that's all about to change.
What does the new tax bill imply for those who pay alimony?
Under the new tax bill, the partner who pays the alimony is not entitled to a tax deduction and the recipient is not required to pay taxes on the money that is received as alimony. This new rule has rendered systems used by lawyers to calculate alimony, unusable. The system was heavily based on the tax codes that were set in the past and now with the new changes, it seems as though the entire system will have to be modified to accommodate the new changes. This can make the already miserable ordeal of divorce even worse. Earlier, alimony payers were entitled to tax relief on the alimony, but with the new law, paying alimony is bound to become more burdensome. Negotiations can become much harder from now on.
Does the provision benefit those who receive alimony?
Up until now, a number of divorce cases were negotiated outside the court. The new tax bill looks as though it might make divorces quite expensive, especially for the higher paid earner who is entrusted with paying alimony.
The new tax bill, however, seems to be gloomy only for lawyers and the higher paid earners. Across the United States, a number of divorcees have been calling up their lawyers, in order to inquire whether the conditions of their alimony can be altered according to the new law. The new tax bill appears to be beneficial on the surface, but it is simply a false perception. In fact, it does not benefit either of the two parties. Earlier, the higher paid earner could pay a sizable amount as alimony without being too much affected because of the tax benefits he/she was entitled to. The recipient was responsible for paying taxes on the alimony, but in such cases, they would still be left with a sizable portion even after the taxes were paid.
Under the new law, the higher paid earner can argue that with the taxes that are to be paid, he or she is not in a position to pay what was paid earlier and this could affect the recipient as well. With such a discrepancy, negotiations can become heated arguments in no time and a large number of cases might move to the court now than ever.