For people in New York and elsewhere around the country who are seeking a divorce, alimony and spousal support can be some of the more complex financial issues that are addressed in a settlement or court order. Property division and other financial aspects of the end of a marriage can also lead to lengthy, contentious negotiations and filings. These issues could become even more complex after the U.S. tax bill adopted in December 2017, which introduces changes to a long-standing tax rule related to spousal support, goes into effect.
For the past 75 years, federal tax law on spousal support has been consistent. The party who pays alimony is eligible to deduct those payments from his or her taxes, often providing a significant reduction in tax burden. Meanwhile, the person who receives the support must pay taxes on the payments in addition to his or her overall income tax burden. Many state algorithms for spousal support take this tax framework into account when suggesting payment plans. As of January 1, 2019, those who pay alimony will no longer be eligible for a tax deduction, and the recipients of spousal support will no longer need to pay taxes on the payments.
Many lawyers and financial experts expect to see a number of changes following the implementation of the new tax laws. For example, overall payment amounts are likely to be lower without the tax benefits. In addition, recipients will no longer be able to invest support amounts in retirement accounts that are restricted to taxed income.
A family law attorney may be able to answer questions about spousal support and the impact of the tax law changes. Some individuals are trying to divorce quickly before the new tax law goes into effect. A divorce lawyer can help someone who is looking to end his or her marriage to receive a just settlement and protect his or her assets.