Financial matters are often some of the most difficult issues for Kentucky couples to sort out while finalizing a divorce. Alimony payments are often a particularly contentious topic that may lead to lengthy negotiations or extensive court filings. However, the recent adoption of the new federal tax bill in December 2017 has major implications for taxation of spousal support payments.
Since the mid-20th century, U.S. federal tax law has had a standard approach to alimony payments. Traditionally, the alimony payer is entitled to a tax deduction on the basis of the amount paid. The recipient of spousal support, on the other hand, must pay taxes on the payments as part of their overall income taxes. However, after December 31, 2018, this will all change; payers of alimony will now be denied the ability to deduct payments from their income taxes while support recipients will not have to pay tax on funds received.
The changes to tax law are expected to have a significant impact on future divorce settlements. The average amount and duration of support payments will likely decrease as the increased tax burden will lower the amount of alimony a former spouse can pay. For the recipient, they will be relieved of the tax burden but probably receive lower payments.
The changes are so significant that they are prompting many spouses in rocky relationships to visit family law attorneys. Some couples are filing for divorce in order to finalize their actions in 2018 under the current rules. A divorce lawyer can help a spouse to protect their assets and achieve a fair settlement on matters related to spousal support, asset division and even child custody and support.