According to reports, big changes are coming in the Internal Revenue Code in 2018. One of those changes could mean a busy year for those who work in family law here in Pennsylvania and throughout the country. That's because it appears that the final version of the new tax bill contains a provision that beginning Jan. 1, 2019, those who pay spousal support (alimony) will no longer get a tax break for making those payments.
Currently, alimony payors receive a dollar for dollar deduction from their taxable income, and alimony payees are required to report those payments as income. This tax treatment took some of the "sting" out of paying alimony, and some believe the coming change will make spouses who face providing alimony less amenable to doing so, which could cause further financial difficulties for the spouse who would receive the support. Because of this, more couples could end up in court over this issue.
This tax change was to go into effect in 2018, but it was delayed until 2019. This gives couples another year to work out their divorce settlements and continue to receive the current tax treatment. The tax law may allow any settlements already in place to be renegotiated after the new law goes into effect to "opt out" of the new tax structure. Any settlements finalized over the next year may be able to include a caveat that the issue of alimony can be revisited, if necessary, depending on how this new tax structure works in reality.
At this point, just how this part of the new tax law will affect Pennsylvania residents who pay alimony remains unclear. It could take some time for the full effect to be known. In the meantime, it could be a busy year for family law attorneys as they work to help their clients understand this new wrinkle in the payment of alimony. In addition, a large number of people may decide to move forward with and finalize their plans to divorce over the next 12 months in an attempt to retain the right to deduct spousal support payments on their income taxes.
Source: Bloomberg, "Why You Don't Have to Rush to Get a Divorce Before 2018", Alexis Leondis, Dec. 18, 2017