December 1, 2018

New tax law could hurt divorced people

As residents in Michigan look ahead to the impending new calendar year, there are likely many changes to prepare for. Some of these changes may be things people initiate and choose themselves and other changes might be imposed on them. One of the changes that people have no control over is the implementation of the new tax law, set to take effect on January 1, 2019. Many things will factor into whether or not the changes to the tax code are considered positive by taxpayers. One of those things pertains to spousal support payments.

Paying alimony every month to one’s former spouse is not something people be happy about but up until now, the person who has been ordered to do so has at least been able to deduct the money paid from their federal income tax return. This ability to get a tax break in exchange for paying spousal support may well have facilitated the agreement to pay alimony in many divorces.

As Think Advisor reports, starting in the new year, the person who must pay alimony must also pay income tax on that money. The new rule will be in effect for any divorce settlements finalized on or after January 1, 2019. A divorce that is finalized within the current 2018 calendar year may be able to be governed by the current tax structure for any spousal support awards.

It is unclear exactly how this change may play out during divorce negotiations but couples might want to reconsider their choices when it comes to alimony in light of the new tax law.