Tax Law Changes can Put Additional Financial Pressure on Divorcing Couples

Due to changes in the tax law, it will now be more difficult for couples to divorce. Trump's tax reform changed many deductions, that were previously counted on by couples going through a divorce.

According to Ken Neumann, Director of the Center for Mediation and Training in New York City, it will now be more financially difficult for couples to divorce. This is because of the changes in the updated tax code that change how alimony is taxed.

As described by attorneys from the Bombardo Law Office, P.C. in New York, “Previously, alimony was tax-deductible for individuals who paid it and taxable income for those who received it. Now, for the first time in 75 years, it will no longer be taxed or deductible.” Divorce lawyers and accountants in New York and across the nation are trying to work out what these changes mean for their individual clients.

Eliminating the tax obligations and rights that come with alimony on both sides of the equation has rendered many of the programs used to calculate alimony unusable. This is because the guidelines used to determine appropriate alimony amounts for divorcing couples relied on existing tax codes. Promising paying spouses tax relief for the payments they would make also helped lawyers to negotiate divorces, and losing this could make divorce a messier, more drawn-out process for many couples in 2018. In fact, notes Neumann, couples now might choose not to divorce at all, simply because they cannot afford to do so. This could potentially trap individuals and their children in unhealthy, unsafe households.

It is not yet clear if existing alimony orders that are modified after the new tax code is enacted will be able to eliminate their tax requirements. Eliminating the tax options and obligations for alimony can lead to many different scenarios for individuals and couples, including:

● Recipients initially feeling like they receive more alimony because they do not have to pay taxes on it;

● Lower amounts being ordered for alimony, because without the tax deduction, payers will not be able to pay out as much to their former spouses; and

● Difficulty putting away money for retirement for recipients, because retirement funds must come from taxed income.

Some couples are scrambling to finalize their divorces before the new tax code kicks in. Others are putting off their divorces because right now, their lawyers cannot give them realistic answers to their financial questions.

Summary: The new tax law changes will have a significant effect on couples who pay or receive alimony after a separation.

Release ID: 318919