Will Alimony Really Be Affected By Tax Overhaul?

For better or for worse, alimony laws are changing, thanks to the giant tax overhaul signed into law in December, 2017.  One of the provisions of the new Tax Cuts and Jobs Act removes the 75-year-old tax deduction for people making alimony payments. The new rules do not affect people who have divorced or signed a separation agreement before 2019; however, if circumstances in a divorced couple’s lives change, the alimony situation can be readdressed and the new laws may come into play.

While the writers of the law feel that the rules will be fairer to divorcing couples, many divorce experts look at it differently.  The feeling is that divorce negotiations will become tougher and more money will go to taxes and less to future alimony recipients, who may wind up losing 10% to 15% of what they would get under the current law.

Divorce and settlement negotiations are traumatic enough under the best of circumstances; adding the additional worries and loss of income created by the new law can make your situation even more stressful.  The compassionate and experienced Illinois divorce attorneys at Wolfe & Stec, Ltd., understand the stresses and financial pressures of divorce and recognize the concerns you have for your future and that of your children.  If you have questions about how the new law affects you or on any other family-law issue, we offer a free initial consultation to examine your individual situation and help come up with solutions that are best for you and your family.

Contact us online or call 630-305-0222 to set up your free consultation.

What Are the Changes and Why?

The tax-writing House Ways and Means Committee has called the tax deduction for alimony a “divorce subsidy,” because the committee feels that divorced couples can save more money on their total taxes through the old alimony system than they could if they remained married.  By changing the system, Congress’s Joint Committee on Taxation estimates that repealing the alimony deduction will add $6.9 billion in new tax revenue.

Under the current tax law, anyone ordered to pay alimony is allowed to deduct the monthly payments from their income. This deduction can be a significant savings, especially for people who have to pay large amounts of alimony. Under the new law, this savings is gone — spouses will no longer be able to deduct alimony payments from their federal income for tax purposes.

Also, under the current law, the spouse receiving the alimony payments has to report it as income and pay taxes on it. The new law allows the spouse receiving the alimony to receive it tax-free.

So in the future, the spouse paying alimony will not be able to deduct it for tax purposes, and the spouse receiving it will not to have to pay taxes on it.  Alimony will now be treated the same way as money paid for child support – not deductible by the parent making the payment and as nontaxable income for the recipient.  The government will usually come out ahead and wind up with more total money from the couple because the paying spouse almost always earns and pays more taxes than the receiving spouse, so the paying spouse benefits more from the deduction.

What This Means for Divorcing Couples

Since this law will not take affect until 2019, spouses who will be receiving alimony as part of a divorce will benefit from putting off making their divorce final until 2019, and those paying alimony will want to finalize the divorce before 2018 ends.

In Illinois, spousal maintenance is awarded only if a court determines that it should be – it is not mandatory in every divorce situation. Couples can also make prenuptial agreements determining in advance whether there will be maintenance and what the amount should be.  They can also write up agreements about maintenance after they are married. The new law on deductions could be a factor in negotiating agreements and also how the courts determine the amount of alimony to be paid. In addition, since the amount of taxes will probably be higher, the amount left for both households to live on will be lower.  As a result, Illinois may have to make some changes to existing alimony guidelines.

What About Existing Divorces or Separations?

Although not usual, there are some situations where the new laws might be better for a divorced couple than the current laws.  Therefore, the new tax law includes a special rule so that taxpayers with pre-2019 divorce or separation decrees can have their agreement legally modified to have the new rules under the Act apply to their divorce. Your tax advisor or an experienced divorce attorney can help determine whether this applies to you.

Contact Us for Help and a Free Consultation

The compassionate and experienced Illinois family-law attorneys at Wolfe & Stec, Ltd., understand the stresses and financial pressures of divorce and recognize the concerns divorcing couples have for their future.  We know that when changes occur, you will have to deal with the results for years.

If you have questions about the new tax laws, calculating alimony, or modifying or appealing existing orders, you should contact an attorney to be sure your rights are protected. At Wolfe & Stec, Ltd., we know the laws, the tax codes, the courts and the system and can guide you through the process.  We represent and advise clients in all types of divorce matters and have a long history of success.

Don’t delay. For a free initial consultation with an experienced and compassionate DuPage County divorce and family law attorney, contact us online or call 630-305-0222 for a free initial consultation.

Attorney Natalie Stec

Natalie M. Stec, born and raised in Illinois, and earned her Bachelor of Science from the University of Illinois at Urbana-Champaign. Her practice has been concentrated in significant pre and post decree marital and family law cases; including custody, visitation, support, and paternity matters. She has important criminal defense experience in both misdemeanor and felony cases. She is a very dedicated and passionate litigator. [ Attorney Bio ]