Will Divorce Be More Expensive in 2019?
On December 31, 2018, the tax deduction for alimony will be ending under new federal tax laws. If you are in the middle of a divorce, or thinking about it, you might want to sit up and take notice. As author of the legal tax reference Frumkes & Vertz on Divorce Taxation, I’ve been reporting on and teaching colleagues all about these changes. Here are some explanations why decisive action could save money on your taxes and in your divorce.
1. The courts might issue alimony and spousal support orders in smaller amounts.
In 2019, many people will continue to need spousal support while going through the divorce process, and alimony after the divorce is final. Since the payor will not have the benefit of a tax deduction, and the recipient will not have to pay tax, the amount of spousal support and alimony may be reduced. This reduction might sound like a benefit for those paying alimony, but it is also a drawback.
When alimony is reduced next year, the reduction might not be equal to the savings a payor would have gained from the tax deduction. Also, the alimony reduction might be greater than the tax the recipient would have paid. It is unclear how the family courts will adapt to the new tax laws, and outcomes might vary from county to county, judge to judge, and case to case. Yet, if a divorce or spousal support claim is settled by December 31, 2018, the tax deduction can be preserved, even for future years.
2. If you are now paying alimony, you might be able to relax.
The alimony deduction has been repealed by the new tax law, except for alimony and spousal support orders (and agreements) signed on or before December 31, 2018. So, exes who are currently paying alimony can probably relax. Even if their alimony is modified in the future, the modified alimony can still be tax deductible.
3. If you are now paying spousal support, make time to finalize your divorce.
If you are currently paying spousal support, and your divorce settlement is not finalized by the end of the year, an alimony order or agreement issued next year might not qualify for the tax deduction. So, make an effort to finalize your settlement before the end of the year if alimony is on the horizon for you
4. The more income and wealth you have, the more pressure to settle now.
The highest tax bracket (for 2018) is 35 percent, so the alimony tax deduction is most valuable for those who pay the most tax. It is especially valuable when the recipient pays tax in a lower bracket. In those cases, the payor’s tax deduction is greater than the recipient’s tax bill, so the entire family may save.
5. Even taxpayers who don’t itemize may claim the alimony tax deduction.
Alimony is (was) a special, “above-the-line” type of tax deduction, which could be claimed by taxpayers who did not otherwise itemize their deductions. Under the new tax laws, many itemized deductions have been limited or repealed. At the same time, phase outs for upper income taxpayers have also been eliminated. The alimony tax deduction has become even more important for those who can still claim it.
Taxes are complicated enough even without a pending divorce and subsequent alimony. Make sure you have a qualified Pittsburgh divorce lawyer and CPA on your team to help you sort through the options. If you are interested in discussing your individual situation with our family law attorneys, fill out our online contact form or call us today at (412) 471-9000.
Brian C. Vertz is a partner in Pollock Begg Komar Glasser & Vertz LLC with decades of experience in routine and complex child support, divorce and tax-related family law cases. Author of the legal reference book “Frumkes & Vertz on Divorce Taxation,” Brian is a sought-after speaker, course planner and the author of the 2017 Family Law Update for the Pennsylvania Bar Institute. Brian is a fellow of the International Academy of Family Lawyers as well as the American Academy of Matrimonial Lawyers.