If you’re considering getting divorced in the future in Oakland County, you need to know that the new Tax Cuts and Jobs Act (TCJA) will be changing the way alimony is taxed for all separations and divorces after 2018. What does that mean, and how could it affect your finances in the future? We’ll explain…
What the current law is:
Under the current laws, anyone who pays alimony or separate maintenance can deduct an amount equal to that payment (the total paid for the year), as an “above the line” deduction.
An ‘above the line’ deduction refers to a deduction that a taxpayer can claim without having to itemize it. Also, under the current law, taxes on alimony payments are paid by the person receiving them, not by the person paying them. In short, alimony payments are tax deductible to the payer and they must be included in the income of the spouse that received the alimony.
How the law will change next year:
Beginning in 2019, all of that changes. There will be no deduction for the person paying alimony to a former spouse. Also, alimony will no longer count as part of the recipient’s gross income. The payer can no longer deduct it on their taxes.
On the flip side, however, the person receiving the alimony payments does not have to claim that money as income. So they do not have to pay federal taxes on any alimony they recieve.
When the law changes, does it affect current divorces?
For those of you who are already divorced, and are concerned about how this change may affect the way your alimony payments are taxed, the answer is no. This change will only affect alimony agreements ordered by the Oakland County courts (and all other Michigan courts) after the new law goes into effect. In fact, under the new tax code, this new change will apply all over America.
Any alimony or separate maintenance agreements signed by the court before the new law takes effect, won’t be affected by it in any way. The current laws will continue to apply to any and all divorces that are finalized before 2019 begins.
What about my child support agreement?
Some people, upon learning about the new tax laws, are concerned that the changes being made to alimony will apply to child support payments as well. Rest assured – these changes are ONLY for alimony and how it’s taxed. It will have no bearing on child support payments, or how child support payments are taxed.
What about if I modify my alimony agreement after 2019?
Another concern that some Oakland County tax payers may have, is whether the new law will affect their alimony agreements in the future if they modify those agreements in any way. The answer is no, the new law will not affect alimony from pre-2019 divorces, even if the modifications are made after 2019.
The only way the new law could affect an old alimony agreement is if the modified agreement expressly specifies that the new TCJA rules apply to the agreement. Otherwise, it will continue to be governed by the old income tax laws.
Do you need help with a divorce in Oakland County?
If you or a loved one are considering divorce In Oakland County, Michigan, and are concerned about how the new law will affect your alimony agreement, call The Kronzek Firm at (248) 479-6200. Divorce is always a difficult process, and alimony orders can add to the complications. We’ve been involved in hundreds of divorce cases over the decades.
Don’t try to deal with divorce or spousal support orders on your own. Always hire a skilled family law attorney to advocate on your behalf, and help you come to a fair arrangement. Our Oakland County office is conveniently located in Farmington Hills, and we’re available to help you out with whatever your divorce needs may be.