Written by: Steven Lane, Family Law Committee Chair
The new Tax Cuts and Jobs Act (P.L. 115-97) (“TCJA”)will begin to take effect as regards certain divorce-related issues come January 1, 2019. As a result, individuals who are in the midst of divorce proceedings may want to delay their divorces while others may want to get their divorce as soon as possible, depending upon how the TCJA affects them.
Up to now, alimony/spousal support payments were tax deductible by the party making the payment and were reported as income by the party receiving the payment. Often times the tax deduction benefit to the payor spouse could be used in such a beneficial way as to facilitate settlement of the support issue as well as other issues between the parties. In other words, the tax deductibility gave the parties a great deal of flexibility to settle their divorce issues to their mutual benefit.
Those benefits and that flexibility comes to an end on December 31, 2018 because the TCJA eliminates deductions for alimony payments unless the alimony is subject to an agreement entered into on or before December 31, 2018. If you are a payor spouse, you will probably want to get your divorce/support agreement done before December 31, 2018. However, if you are the payee spouse, then you might not want to make any support agreement until after December 31, 2018 because the payments will not be includable as income to the payee spouse for any new judgment entered into after December 31, 2018.
The new TCJA rule for alimony payments will apply to payments that are required under a divorce agreement that is executed after December 31, 2018 or that is modified after December 31, 2018 if the modification states that the new TCJA rule now applies.
Just as the old rule was of great benefit to payor spouses who realized tax savings because they were able to deduct alimony payments from their reported income, similarly, after December 31, 2018, payor spouses will lose that benefit and payee spouses will not be burdened by the tax liability of having received alimony payments.
The new law does not apply to divorce/support agreements that are executed before January 1, 2019.
Therefore, if you are in the midst of a divorce and/or are contemplating divorce, you should consult your attorney and/or CPA to make sure you take whatever action is necessary in order to avoid any adverse consequences from the new tax law.
Steven J. Lane
Chairman, Family Law Committee
New Orleans Bar Association