For many years, alimony has been tax deductible to the paying party and counted as taxable income by the receiving party, but as of January 1, 2019, that’s all about to change. If you’re contemplating divorce and there’s a strong chance that your divorce will involve an alimony award, you’re going to want to listen up.
Starting January 1, 2019, divorcing couples will see sweeping changes in the tax consequences of alimony; however, these changes will especially impact wealthy individuals. As the law currently stands, alimony payments are tax deductible for the paying spouse and they are considered taxable income for the recipient spouse. The pre-2019 law will continue to apply to divorce agreements signed before December 31, 2018. So, if you prefer to deduct alimony payments, you won’t want to delay your divorce.
This tax deduction can offer a huge incentive, especially for very wealthy individuals who can be placed into a lower tax bracket after deducting their alimony payments. But any divorce agreements signed on or after January 1st, alimony will no longer be tax deductible and the one who receives it will no longer pay taxes on it like regular income.
Should You Get Started Now?
Our belief is that the changes in the law will make compromises more challenging, especially among high-net-worth couples. What we can expect is the paying spouse to want to pay less to offset the difference. After all, they’ll no longer enjoy the tax benefits.
If you are a wealthy individual who’s been wanting a divorce and you expect to pay alimony, it may make sense to sign off on an agreement before December 31, 2018. “What about modifications?” If an agreement is signed before the end of the year and it’s modified in 2019 or later, the pre-2019 tax rules will still apply, unless your divorce agreement uses language that says otherwise.
If you are interested in the current tax rules applying to your alimony case, contact us today to meet with a Las Vegas divorce attorney sooner than later.