New Tax Law Change May Make Divorce Negotiations More Heated
Individuals going through divorce who have significantly different incomes have relied on the alimony structure for years to help bridge this gap. However, a new federal law may impact whether divorcing spouses rely on spousal support to better balance their economic situations or whether they fight out the case in court.
Old spousal support rule
The only alimony system was based on state law. Each state had its own set of rules pertaining to spousal support. These rules were used to determine how much spousal support should be paid and for how long. Despite potential differences between states, one rule was consistent: alimony was tax-deductible for the payer, and the spouse who received it had to pay income tax on it. Proponents for this rule believed that it provided tax relief to a higher-earning spouse who had a bigger tax bill to transfer income to a lower-earning spouse with a less burdensome tax rate.
A new rule under the Tax Cuts and Jobs Act may have a significant impact on how divorcing spouses respond to demands for spousal support. The new rule will make alimony payments no longer tax deductible. Likewise, the recipient spouse will not be required to pay income taxes on alimony payments received. The new rule will become effective for divorces beginning in January 1, 2019.
The tax law could have significant effects on divorce cases. Traditionally, alimony was paid to wives who had sacrificed their own career ambitions in order to support their husbands’ careers or raise the couple’s children. Alimony today can be paid to divorcing wives or husbands. Parties often disagree about spousal support with the paying spouse believing that the recipient spouse should not continue to benefit from his or her efforts if the spouse remains unemployed or underemployed. The recipient spouse may feel that the paying spouse is being unfair and not properly acknowledging the other, non-economic contributions he or she made to the marriage. Offering tax relief to alimony payers is often a way to smooth negotiations and give an incentive to them to pay this support.
Some critics of the bill believe that the new tax law change will negatively affect families because two households cannot easily be financed as they had before as one household and that the elimination of the current tax structure will impose additional burdens. Others believe that the law may make it so that the parties do not get divorced and instead unhappily live under one roof. Alimony payers are more likely to want to negotiate a smaller amount of spousal support since he or she will not receive favorable tax treatment. Divorcing spouses may not reach an agreement regarding spousal support and may be more likely to require the court to determine this issue for them. Additionally, many couples may try to get divorced before the end of 2018 before the new tax law goes into effect.
Contact a knowledgeable Murfreesboro divorce lawyer for answers to all your questions
Our Murfreesboro divorce lawyers stay up-to-date on all recent changes in alimony laws and other laws that impact divorcing spouses in Tennessee. We can explain Tennessee spousal support rules and how the new law may impact your case. Contact us online or call us at 615-890-1982 to schedule a confidential consultation with one of our knowledgeable family lawyers.