Pennsylvania ex-spouses who had to pay alimony have long benefited from the ability to deduct alimony expenses from their net income. This benefit made alimony payments a lot more palatable -- especially when payments served to drop the payer down to a lower tax bracket. With the new federal tax bill passed by Congress last month, however, the ability to deduct alimony payments from income is going to end.
Fortunately, divorcing spouses will have until the end of 2018 to complete their current divorces and still benefit from the tax deduction benefit. Marriages that come to a close in 2019, however, will be subject to the new tax codes. This means that -- for any divorce that finalizes after year-end 2018 -- those who receive spousal maintenance checks will no longer need to include this money on their income tax statements; and, those paying spousal maintenance will no longer be able to deduct this money from their income tax statements.
Analysts are predicting that some spouses will be hurrying to finalize their divorces in 2018 before year-end so they can benefit from this important tax benefit. Considering that contested divorces can take over a year to finalize, this could be added motivation for "moneyed" spouses to try to settle their proceedings out of court. Meanwhile, spouses who stand to benefit from alimony payments might choose to wait it out before filing -- or even contest their divorces -- so they end up finalizing in 2019 and they won't have to pay taxes on their alimony payments.
Regardless of your current circumstances, if you are considering divorce, you and your divorce lawyer will want to keep in mind the new tax laws -- and navigate the proceedings accordingly -- when your divorce could end in paying or receiving spousal maintenance.
Source: Reuters, "Your Money: Get ready for a flood of difficult divorces in 2018," Beth Pinsker, Dec. 21, 2017