This week, we've got a small change of pace: A question from a current client instead of the internet!
So, enjoy a peek behind the curtain as our family lawyers field a question about alimony payments that we thought many of you would find helpful, too.
As one of our clients reviewed a draft of their divorce documents, they asked about how taxes worked with their alimony payments.
Specifically, they were under the impression that their alimony payments were personally tax deductible, while their ex would pay tax on the payments as income.
Our client would've been 100% correct only five years ago!
However, the Tax Cuts and Jobs Act of 2017 reworked a lot of our tax code -- including how alimony payments are taxed for new separation agreements and divorce decrees.
For any divorces and settlement agreements finalized after January 1, 2019, payors of alimony cannot list alimony payments as tax deductions.
And, recipients of alimony payments no longer have to report the payments as taxable income.
The rationale for this adjustment is rather financially savvy for the federal government. The theory goes, the person paying alimony is typically taxed in a higher tax bracket than the individual receiving alimony.
So, the government would rather take their cut from the higher paid person, than from the lower income individual.
For those currently involved in alimony negotiations:
Note that the rule change only applies to alimony agreements after 2019. All settlements and divorces finalized before 2019 still play by the old rules: The payor can get tax deductions, and the recipient must report the alimony payments as taxable income.
Of course, earlier alimony agreements can be modified to play by the new tax rules. But, that would require formal mediation and official post-divorce modifications!
You can submit your own question to #LegalSays below, or just skip the wait and go straight to scheduling your own (free) first consultation with a JC Law attorney at your convenience.
Our general disclaimer: We're lawyers, but not necessarily your lawyer, and do not represent the individual who asked this question. We're providing this information for general educational purposes based on the publicly available information provided by the anonymous Internet user. Any number of details may change how this individual's attorney may pursue this legal situation, differently from how we suppose above. If you have a similar question, then you should consult with a lawyer about your specific situation to get a "real" response!