New tax law affects alimony, could spur divorce surge
Because of the new tax law, spouses paying alimony won't be able to take a deduction while spouses receiving alimony will no longer have to report it as income, report Politico, USA Today and Morningstar.
The alimony deduction has been in the tax code since 1942. The change doesn't affect people who divorce or sign a separation agreement before 2019, according to USA Today. Spouses negotiating alimony payments may try to pay less when they change takes effect because there will be no tax savings, some experts told the newspaper. “The repeal reduces the bargaining power of vulnerable spouses, mostly women, in achieving financial stability after a divorce,” Vertz told Politico. USA Today cites U.S. Census Bureau statistics showing that 98 percent of the 243,000 people who received alimony payments last year were women. Some lawyers question whether the change will affect prenuptial agreements that had called for payment of a set amount of alimony if there is a divorce. Elimination of the deduction will lead to higher revenues overall for the government because the person who deducted the alimony was likely in a higher tax bracket than the spouse declaring the alimony as income, Morningstar says. Eliminating the deduction could also push the alimony payer into a higher tax bracket.