In December of 2017, Congress passed the Tax Cuts and Jobs Act and the bill was signed into law by President Donald Trump. Many people have heard about this new law as it received an abundance of media attention. However, many people are not aware how it will affect them, and even more are unaware that it may have a significant impact on their pending divorce.
A provision of the new law that has been overlooked by many is its effect on alimony payments. Under current law, a person paying alimony is able to deduct that payment on their Federal Income Taxes each year. At the same time, a person receiving alimony payments is required to claim the payments as income. For example, if A were ordered to pay B $1,000.00 a month in alimony, A’s income would be reduced by $12,000.00 a year and B’s income would be increased by $12,000.00 a year.
The new law changes this rule. Under the new law, alimony payments are no longer deductible to the payor and the payee is no longer required to claim these payments as support. Therefore, in the example above, A’s income would no longer be reduced and B’s income would no longer increase.
The change does not take effect until December 31, 2018, so if your Final Judgment of Dissolution of Marriage was (or is) entered before that date, the former rules will still apply to you. One exception to this is if your alimony payment is subsequently modified. If the modification expressly provides that the amendments made by the new law apply to the modification.
Those who have been through a divorce are likely aware that it can take weeks, or even months to finally get a signed Order dissolving the marriage after the parties have agreed to a settlement. The new law is not entirely clear on what will happen if a persons Divorce case is settled prior to December 31, 2018, but a Final Judgment is not actually signed until after December 31, 2018. The new law states that the it is determined by when the “divorce or separation instrument” is executed. However, “divorce or separation instrument” is defined as both a “written decree” or “a written instrument incident to such a decree” or “a separation agreement.” Therefore, if you are going through a divorce, especially as the end of the year approaches, it is important to speak to your attorney about how the date you sign your settlement agreement and the date your Final Judgment is finally entered may affect you.
The attorneys at The Law Office of Pamela J. Helton, PA will be happy to assist you and answer any questions you may have regarding divorce and alimony. Please call us at 352-233-9991.