Alimony Deductions and the Tax Cut and Jobs Act

As 2017 draws to a close, one of the biggest national news stories has been the proposed changes to the Federal Tax Code.  As I previously wrote on this subject of tax reform alimony impact, it’s not often that federal laws or regulations impact New Jersey family law–but this is one such rare occasion.

The “Tax Cuts and Jobs Act” is now a reality, and will have an impact on the nation’s business, “pass-through” and personal tax rates and deductions. In the realm of divorce law, however, the biggest question was whether or not alimony deductions would be repealed.

The House Bill eliminated such deductions for alimony payers effective January 1, 2018.  The Senate, however, has revised the bill so that the deduction for alimony payments is now eliminated effective January 1, 2019.

As currently structured, alimony law has been taxable to the receiver (obligee) and tax deductible to the payer (obligor).  Commencing January 1, 2019 it will not count as income to those that receive alimony, but those that pay (who are often in a higher tax-bracket) will no longer be able to deduct such expenses. (Note that child support remains a non-taxable event, as before). As divorce attorneys often negotiate divorces based on the tax impact of alimony, this is something that will have to be implemented in future divorce strategy.  One likely result may be demands by those that are required to pay alimony in future divorces that the amount to be paid should be increased. This law will also have a large impact on alimony buy-outs, as there will no longer be a need to “tax-effect” such payments.

For those that are already divorced (or will be divorced by the end of the day on December 31, 2018), and paying long-term or permanent alimony (particularly those that divorced prior to NJ Alimony Reform), this tax code change is currently going to be applied prospectively–meaning their should be no change for those divorced prior to January 1, 2019.

Accordingly, for those considering divorce this is another factor to consider when finalizing a divorce agreement commencing in January 2019.

If you’re ready to discuss your options and believe my firm may be a good fit, please contact me.  If you would like to read a more in-depth analysis of New Jersey Divorce Law, click here to download my free ebook: New Jersey Divorce Law: The Path Forward. 

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If you’re considering a New Jersey divorce or Family Law action contact me to discuss your options.  You can schedule an initial consultation by calling my office at 908-237-3096 or by scheduling your own divorce consultation online by clicking here.

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