It may only be September, but anyone considering or going through a divorce in New York should be very attentive regarding the countdown to December 31, 2018. Big changes are coming for tax laws as they pertain to spousal support in divorce cases and, as the New York Times suggests, you may want to hurry up in your efforts to get the process moving along. The details regarding tax deductions and alimony will depend on your unique circumstances, so it is critical to consult with a knowledgeable Schenectady County family lawyer about a strategy to protect your interests. However, an overview of the current law, upcoming changes, and your options may be useful.
Current Spousal Support Tax Treatment Applies Through December 2018
The basic legal theory and statutory landscape behind alimony will not be affected by the new tax law. New York’s divorce statute on spousal support still allows a spouse to seek maintenance and will force the other to pay it, where appropriate to ensure financial stability. Divorce courts will still be required to consider certain factors when awarding spousal support, including the length of the marriage, earning capacity, employability, asset division, and others.
Until December 31, the payor spouse can take a tax deduction for all amounts paid under an alimony agreement that is finalized or modified before that date. In other words, the person paying support can deduct those payments from income before calculating their income tax liability.
An illustration may help you understand the benefit of taking advantage of this favorable tax treatment:
- Based upon a high income, the payor spouse falls in the 50 percent tax bracket;
- The recipient spouse receives alimony of $50,000 per year pursuant to an agreement the parties executed as part of the divorce decree;
- According to a cash flow basis, the payor makes spousal support disbursements totaling $50,000;
- The deduction applies at the 50 percent tax rate, so the actual cost of alimony is $25,000.
Elimination of the Tax Deduction Starts in 2019
The new tax law gets rid of the spousal support tax deduction and all the financial benefits that go along with it. However, it only applies to alimony arrangements that are finalized on or after January 1, 2019. If divorcing couples can negotiate a fair and reasonable spousal support agreement, and have the proper documents filed in court before that date, the payor spouse can still take advantage of the alimony tax deduction.
In addition, note that modifications of spousal support are also affected by the new tax law. A finalized modification judgment entered before the end of the year will allow the payor to claim the deduction. Any efforts to modify alimony starting in 2019 will result in no deduction.
Discuss Taxes and Spousal Support with a Schenectady County Family Lawyer
For more information on the new alimony tax law, please call the Colwell Law Group, LLC at 518-864-0564 or visit our website. We are happy to schedule a confidential consultation to explain your options and the benefits of working out a spousal support agreement right away.