As explained by CNBC, since the 1940s, spousal support payments were considered taxable income for the spouse who received the money. The spouse who made the payments, in turn, received a tax deduction on the amount paid to their former spouse. Going forward, the person who makes alimony payments will also pay income tax on the money. This could be a big game-changer for divorce agreements.
The spouse who would be liable for making alimony payments may understandably be less willing to make these payments. If spousal support is agreed upon, the amount paid may be less than it would have been under the old law. Also, the person who receives alimony may have a limited ability to invest the money in retirement funds as many require funding only with earned taxable income. All in all, the new tax code has immediate and long-term implications for modern divorces.
If you would like to learn more about how the new tax laws might influence your divorce settlement, please feel free to visit the spousal support, retirement and taxes page of our New Jersey divorce and family law website.