How the New Tax Plan will Affect Divorcing Families

How the New Tax Plan will Affect Divorcing Families

Whatever your politics, you’d have a tough time arguing that the recent tax overhaul is good for divorcing families. Rather, it adds insult to injury for folks facing the financial challenges that come with having to stretch an already tight budget to cover a second household…

Here’s the issue…

Up to now, alimony (also called spousal support) has been taxable to the person receiving the money, not the person writing the check.  At first blush, that might seem unfair. After all, isn’t the purpose of alimony to redress substantial discrepancies in earning power and standards of living between the two households? Why further punish the financially disadvantaged spouse? The answer is that since the spouse providing alimony is the higher earner, he or she is likely taxed at a significantly higher rate than their ex.  Having alimony taxed at the tax rate of the receiver saves money overall– it preserves resources for the family as a whole. How to then divide that money can be addressed as part of the negotiation about to meet cashflow needs for everyone involved.

Under the new plan, and beginning in January 2019, the spouse paying the alimony will be required to pay the tax on it. Here’s an article that unpacks this unfortunate and short-sighted policy in clear detail: How the Tax Overhaul will Afffect Alimony Deductions