Tax Reform Bill Of 2018 Could Significantly Alter Divorce Rate In 2019
Men paying Spousal Support take another hit
Unfortunately, men getting divorced after 2019 just took a big hit thanks to a recently-passed tax reform bill. This could lead to a lower divorce rate in 2019.
A little-discussed section of the tax reform bill passed by Congress and signed into law by President Trump last December changed the 75 year old tax code that allowed the person (97% men) who pays alimony (spousal support) to deduct those payments from their gross taxable income, and required the person (97% women) who receives the alimony to report those payments as taxable income.
Under the new tax code, beginning in 2019, alimony payments will be tax-free to the recipients, and no longer deductible by those paying the alimony. A heavy financial blow to the men paying all of that alimony!
Q: Why did Congress revoke the tax deduction for men who dutifully pay Spousal Support?
A: To get more tax dollars
Congress identified 2 problems with the very fair and reasonable old rule. First, nearly one-half of the women receiving alimony failed to report that taxable income. Nearly 360,000 men claimed $9.6 billion in tax deductions for the alimony payments that they had made in 2015, but only 178,000 women reported receiving those alimony payments. Nearly $5,000,000,000.00 of taxable income went unreported by alimony recipients.
Second, the majority of men paying the alimony were in a 33% or higher tax bracket, while the majority of women receiving alimony were in a 15-25% tax bracket. Congress went after the taxpayer with the higher tax bracket, rather than going after the tax dodgers.
Congress chose to tax the men that are paying the alimony. The decision to go after the alimony payer will effectively increase that guy’s alimony cost by a full one-third. Alimony will be paid with “after-tax” dollars, but the person receiving alimony will not have to pay a dime of tax on that income. Nice tax-free income for the ex-wife, but a real rip for the guys that just keep paying.
Luckily, there is some good news if you’ve already gone through your divorce or you’re going through a divorce in 2018. If you get divorced before December 31, 2018, you will still get to deduct your Alimony payments. And your right to that deduction will be grandfathered-in even after the new tax law, which could potentially alter the divorce rate in 2019, goes into effect on January 1. Also, if you are already divorced and paying alimony, your right to deduct those payments will continue into the future.
So, if you are thinking about divorce, and you think you will be ordered to pay Alimony, it may be to your benefit to get divorced before the end of 2018, and save your tax deduction. It will save you a lot of money. But be aware, a smart spouse will try to drag the divorce into the new year to dodge being required to report Alimony as taxable income. Tax free Alimony will look good to them. It is important to discuss this issue with your divorce attorney and develop a plan of attack. It will be interesting to see how this new tax law affects the divorce rate in 2019 as well.
Tax Reform Bill 2018 Article Written by Attorney Frank Morris
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