Divorces after 2018 subject to tax change

HEADS up for those contemplating divorce. If you’re seriously thinking about divorce, you might not want to dillydally, depending on whether you will likely pay alimony or receive it.

The new tax plan makes some powerful changes affecting alimony starting Jan. 1, 2019.

Right now, if your divorce decree or separation documents are already finalized, the spouse who pays the alimony can deduct it from his taxes, possibly lowering him into another tax bracket, and the person receiving the alimony must pay taxes on it as income.

Starting in 2019, the one who pays cannot deduct alimony and the one who receives no longer declares alimony as income.

“Initially, my thought is that it will make compromise more difficult,” Las Vegas family law attorney Ishi Kunin said. “I think at least initially payers will want to pay less since they get no tax benefits.”

The payer, generally a man, will be more affected negatively by the inability to receive a tax benefit, Kunin said.

“But big picture, if the courts order amounts that are significantly less by considering the tax implication, there would not be any actual impact,” she said.

Her gut instinct says judges will just look at the numbers without regard to tax effect.

It will be more obvious in divorces among the wealthy, she predicted.

“If the spouse is paying $5,000 a month and cannot deduct it, that $5,000 is more like $7,000,” she said. “It’s likely the one paying is going to ask the one receiving to accept less alimony.”

If alimony puts the paying spouse in a lower income bracket, that could be incentive to go ahead and do the divorce this year instead of delaying.

The change is not retroactive, so if you’re already divorced, alimony remains deductible for the one paying and taxable for the one receiving.

Orders that exist before Jan. 1, 2019, but are modified after that date will continue to be treated on pre2019 rules unless there is language specifically stating otherwise.

I first heard about the alimony changes from Stephen Waldron, a Las Vegas CPA, who explained tax changes to a group of locals interested in finding out how the Tax Cuts and Jobs Act makes a difference in their lives.

Although taxes and divorce are no laughing matter, Waldron joked that

MORRISON