The Changing Tax Laws on Divorce Maintenance Payments (Alimony) After 2018
In 2016, New York Daily News reported that divorce statistics were the lowest they’ve been in 35 years. However, this could soon change. Divorces could be on the rise in 2018 because of a new tax law that will go into effect. When a couple goes through a divorce, there are several issues they must overcome not only emotionally, but also financially. Not only is a divorce and/or child custody attorney an expense of divorce, couples must also decide how they will handle their household and split their other assets. Many decisions must be made that include visitation, custody, and maintenance payments (which used to be known as alimony).
New York law has guidelines are used to by divorce attorneys and courts that will determine how much maintenance payments should be made to a soon-to-be ex-spouse. The guidelines are set in place to make help make calculations simple and streamlined. However, due to the new laws that were passed in December of 2017, divorce guidelines concerning maintenance payments will change when it comes to taxes.
Spousal Maintenance and Tax Laws: The Changes
MPNNow reported that the new tax overhaul was an estimated 500 pages, so there were some shocking changes to those who went through the entire document. One significant change that was issued in the new law was alterations in spousal support and maintenance. The past guidelines stated that divorce spousal maintenance payments are considered income for the recipient, which is used for tax purposes. In addition, the individual who pays the maintenance can use the payments for a deductible from his/her income. The United States Congress issued a new law that decided this guideline is no longer valid.
The law was untouched for 75 years. However, now spousal maintenance payments are not able to be used for tax purposes for the individual who receives the support payments. Furthermore, the individual who pays the maintenance will no longer be able to use it as deductible from his/her income. Although this may seem to be a good idea for individuals who rely on maintenance payments to pay bills, it does have downsides. There are some experts in the divorce industry who are worried that the new law could change the nature of spousal support payments. According to some, the new law could make it harder to negotiate the funds that should be paid to the spouse receiving payments, which could be due to the fact that maintenance payments will no longer be a tax benefit.
The Changing Law Explained
Until the new changes were passed into law, certain expenses associated with maintenance payments could be lessened by tax laws, so the payments would be considered tax deductible, which results in the paying spouse having more to pay because he/she has to pay less in taxes. In addition, the individual receiving the payments would be expected to pay taxes on the money as if it were income.
The new law states that after December 31, 2018, the individual who pays alimony will no longer be eligible to deduct the payments from their taxes. In addition, the individual who receives payments will no longer have to pay taxes on the payments. Basically, the roles (when it comes to taxes) has been reversed. Sadly, the new law could result in skilled divorce attorneys having a hard time letting their clients know the maintenance payments are no longer deductible. Now, it is possible individuals will put up a fight to prevent having to make maintenance payments.
It may seem that the spouse receiving payments will benefit from this change, but some legal divorce experts feel that both individuals will experience downsides to the new law. Taxes are an important component when it comes to calculating maintenance payments. In addition, there is also speculation by some that child support payment laws are also expected to change.
For child support payment calculations, maintenance payments are counted as the payee’s income. If there is a change in maintenance payments, the calculations for child support payments will change due to a different income being put into the child support guideline calculation formula.
How to Adjust to the Changes of Maintenance Support
For many individuals, divorce is stressful enough, but having to worry about tax changes with spousal maintenance payments will only make the process more complicated. According the the New York Post, an estimated 243,000 individuals in New York received maintenance support payments last year. In addition, tax payers reported that they payed an estimated $9.6 billion in maintenance payments during 2015.
One of the most significant reasons the tax law has changed is most likely because congress feels that maintenance support payments should be viewed under the same conditions as child support that isn’t tax deductible for the individual who pays and non-taxable for the individual receiving the child support payments. However, those who oppose the new law feel that because the tax deduction is no longer available, individuals who receive payments will not receive as much, which will hinder his/her ability to function as a single person.
If you are going through a divorce, or you need additional information about child support, maintenance payments, or any other issues dealing with family law, contact us today. When you have a skilled attorney by your side, the divorce process can be less stressful. The Spodek Law Group has over 40 years of experience handling family law cases and are one of the most trusted and reputable Long Island law firms.