Guest post by Beth T. Vogelsang, Esquire, Florida Bar Board Certified Divorce, Marital and Family Law Attorney
President Trump is expected to sign a sweeping tax overhaul into law this week. The final draft of the proposed tax bill was released by Congressional Republicans on Friday, December 15, 2017 at 5:30 p.m. One important provision of the tax reform that divorce lawyers and certified divorce financial analysts have been carefully monitoring is the proposed repeal of the alimony deduction.
Under the current tax code, amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony for federal tax purposes. Alimony is deductible by the payor spouse, and the recipient spouse must include it as income. The latest bill eliminates the tax deduction for payment of alimony.
The repeal of the alimony deduction applies to any divorce or separation instrument executed after December 31, 2018. The House bill would have eliminated these alimony deductions a year earlier, starting in 2018. This gives some breathing room to try to get pending cases finalized, but spouses going through a divorce case involving alimony claims must conclude their cases before the end of 2018 to take advantage of the current tax law. While this may seem like a windfall for recipients of alimony going forward, eliminating the deduction will result in lower alimony awards and it will decrease the cash flow available. This is because alimony payors are generally in a higher tax bracket than recipients; so the amount of the tax savings to payors deducting alimony payments above-the-line is higher than the tax liability of the recipient.
Although divorces concluded prior to the effective date are grandfathered in, and the repeal will not affect those already paying alimony, the new legislation may be applied to divorce decrees which are modified after December 31, 2018 even if the original decree was entered before December 31, 2018, if the modification agreement or order expressly states that the new rule applies. This appears to leaves it in a court’s discretion whether to make future modifications of alimony non-taxable and non-deductible. The landscape is plainly changing when it comes to alimony, with the result that there will be less money in the pot to divvy up.
About the Author
Beth T. Vogelsang handles family law matters in a confidential, compassionate and professional manner. She represents clients in complex divorces, including matters involving international and interstate child custody disputes, intricate business valuations, and identification and tracing of marital assets and income. She also drafts and litigates matters involving prenuptial and postnuptial agreements. Beth has been Board Certified in Marital and Family Law since 1992.
Beth has received much recognition for her work in the divorce and family law field. She has been included in Florida Super Lawyers magazine (2012-2017) and named one of the Top 50 Women Attorneys in the State in 2014 and 2015. Beth has also been included in Best Lawyers in America (2013-2017) and was named the “Fort Myers Family Law Lawyer of the Year” in 2015 and 2017. She is also AV rated by Martindale Hubbell.