The Tax Cuts and Jobs Act of 2017 changed the tax treatment of alimony or separate maintenance payments starting in 2019. For any divorce or separation agreement executed after December 31, 2018, alimony and separate maintenance payments are not deductible by the payor-spouse and are not included in the income of the payee-spouse. Instead, income used for alimony is taxed at the rates applicable to the payor-spouse. This precludes divorcing spouses creating a tax saving when the payor spouse has a higher tax rate than the payee-spouse by moving income from the higher taxed spouse to the lower taxed spouse. This provision scraps the 75-year-old tax deduction for alimony payments.
If an agreement is executed before December 31, 2018 but modified after that date, the new rules apply if the modification expressly provides that the new amendments apply. A practice pointer is that if the provisions of the 2017 Tax Cuts and Jobs Act are not to apply to any post 2018 modification to an alimony or separate maintenance payment agreement, the modification agreement must contain language to this effect.
The new law does not change the tax treatment of child support payments, which remain non-deductible by the payor and not includable as income for the recipient.
How is alimony determined?
There are two types of alimony, called interim spousal support and permanent spousal support. Interim spousal support is for the time period from time petition for divorce is filed to 6 months after divorce is finalized. Permanent spousal support is for the time after the interim spousal support ends. It must be asked for before the divorce is final or you lose the right to permanent spousal support.
Interim spousal support usually consists of needs of one party and the ability of the other party to pay. Both parties will execute an Income and Expense Affidavit to make this determination. After the judge hears the testimony, he will determine how much, if any, interim spousal support a party may get.
Permanent spousal support also consists of the needs of one party and the ability of the other party to pay. BUT, fault will play a factor. The person seeking the permanent spousal support has to be able to show they are not at fault for the breakup of the marriage.