Married couples who are in the middle of a divorce or are planning to file for divorce will want to familiarize themselves with the new federal tax law taking effect in 2019. Currently, the law allows the person who is required to pay alimony to deduct the entire amount from their federal income tax returns. The spouse who is the recipient of the alimony is then taxed on the amount they receive each year. Therefore, the spouse who receives the financial award typically also has to set aside funds to cover their taxes when they file their federal tax returns.
How the New Federal Tax Law Changes Alimony in 2019
Effective January 1, 2019, a new federal tax bill takes effect and it makes some dramatic changes to the current taxation structure of alimony. Spousal support payments will no longer be tax deductible for the spouse who is responsible for making the payments. This means the recipient no longer has to pay any taxes on the monies received. It’s important to note that this new law will only affect alimony awards and divorce settlements that are issued on or after January 1, 2019. If you’re already divorced and paying or receiving alimony, your tax structure will remain the same.
At first glance, this seems like a benefit for the spouse who no longer has to pay taxes on the alimony award. It is certainly a potential negative for the spouse who will lose a potential major deduction. This deduction had the potential to help the spouse reduce their taxable income so much that it placed him or her into a lower tax bracket.
Downsides to the New Tax Law
Losing the potential for this deduction could adversely affect the entire alimony process. Aside from the obvious lack of a tax deduction, it is likely to compromise the process because someone who is required to pay spousal support will fight the award even more. It could lead to spouses trying to negotiate a lower amount or withhold payments all together.
There could also be a rise in potential litigation as the spouse who is ordered to pay spousal support often has the funds to drag the divorce out in litigation. The spouse who is not in a financial position to adequately defend themselves may end up settling for a low-ball offer just to finalize things because they need some money now. It may be even worse for the spouse if they have left the marital home and are trying to pay for their own living expenses in addition to costly litigation.
Retaining a South Carolina Divorce Attorney
If you haven’t started the divorce proceedings, there is a good chance your case will extend into next year. If you are hoping to avoid a change in the new tax laws, it’s important to retain a competent South Carolina divorce attorney now. The skilled family law attorneys at Elliott Frazier Law Firm, LLC can answer any questions and help negotiate a fair and equitable alimony settlement. Contact our office today and let us make this emotional time a little less stressful, while ensuring you receive a favorable outcome.