As many of you are aware, President Trump signed new tax laws that go into effect on January 1, 2019.
If you are currently involved in a divorce, could any of these new tax laws affect you? The answer is yes. More particularly, if you are contemplating initiating a divorce or if you are currently in the midst of a divorce wherein spousal maintenance may likely be a part of your divorce decree or settlement, it may benefit you to finalize the divorce before December 31, 2018.
Currently, spouses required to make spousal maintenance payments (aka payor spouses) are able to deduct these payment amounts from their income on their personal tax return; however, under the new tax laws, this tax break no longer exists. For example, if you earn $150,000 per year and you pay $25,000 in spousal maintenance per year, under the current tax law, you could deduct the $25,000 annual spousal maintenance payment off the top, giving you starting taxable income of $125,000 per year.
As of January 1, 2019, this deduction disappears. Thus, for any new divorce initiated and/or finalized post-December 31, 2018, the payor spouse must include alimony as part of their taxable income, which could result in the payor spouse seeing an increase in the amount they owe Uncle Sam.