The new tax law could make a difference in the way Pennsylvania high-income couples negotiate divorce settlements. The way the tax code handled alimony payments for 75 years changed when President Trump signed the legislation in December. Instead of giving a tax deduction to divorced people who pay alimony, it will be handled like child support. Starting at the beginning of 2019, ex-spouses who pay alimony will not be able to deduct it at the end of the year and those who receive it won’t have to pay taxes on the amount they get.
Divorce advocacy groups criticized the change to the tax code. They are concerned that taking away the tax deduction will make it more difficult for people to get divorced. The deduction made it easier for high-earning spouses to settle their divorce cases by offering alimony in exchange for property or other assets. Although some proponents of the new law claim the deduction was a subsidy to reward people for getting divorced, opponents dispute that idea.
According to Internal Revenue Service filings, $9.6 billion was paid in alimony in 2015. In that year, twice as many people claimed to be paying alimony as receiving it. Removing the tax deduction is expected to add $6.9 billion in revenue over 10 years. These numbers don’t take into account the thought that fewer spouses might include alimony in their divorce settlements after the new tax law takes effect.
Married couples who are considering divorce in the near future should talk to their attorneys about how the new tax law might affect their case. It’s important for anyone getting divorced to plan their financial future, which may no longer include the same alimony payments that heretofore they would have expected to receive.