Will The New Tax Law Cause a Rise in Divorces This Year?

Tax papers on desk

The new federal tax law may prompt a rash of divorces in 2018!

If you’ve been paying attention to the news, then you know that tax laws are changing. On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, which cuts the corporate tax rate, the individual tax rate, and the income tax rate. It also doubles the standard deduction and eliminates personal exemptions. But what does this all have to do with divorce? As it turns out, for some people, maybe a lot!

Under a provision in the new tax law, which begins in 2018, spouses who are paying alimony won’t be able to take a deduction!  Spouses receiving alimony, however, won’t have to report the alimony they receive as income! These changes don’t go into effect until next year though, so couples divorcing before the end of 2018 will still be able to finalize their divorces under the old tax code. So for those spouses that get divorced before 2019, if there is spousal support or alimony being paid, the present law stays in effect. The spouse paying alimony still gets to use those payments as an income tax deduction. The spouse receiving alimony still has to declare that money as income on their tax return.

Should we expect more divorces in 2018?

As a result, numerous experts are saying we should expect a sudden increase in the number of people getting divorced this year! Why? Because the change won’t affect people who get divorced, or sign a separation agreement, before 2019. So spouses who think they’ll end up having to pay alimony, will want to take advantage of the deduction before it’s no longer an option!

This tax law has been controversial from the start. Many people have spoken in favor of the changes, while just as many have said that the effects will be disastrous! Congress’s nonpartisan Joint Committee on Taxation is hugely in favor, and says that the changes will increase tax revenue by billions every year. However, the National Organization for Women, and the American Academy of Matrimonial Lawyers have both opposed the alimony change.

How will this law impact people in the future?

Several family law attorneys have already spoken out about how they believe this new tax law could actually hurt women. Why? Because, according to statistics from the U.S. Census Bureau, 98% of the 243,000 people who received alimony payments in 2017 were women. If that trend continues, it means that it will be women who will be primarily impacted if their former husband’s attempt to pay smaller amounts due to the loss of tax savings. On the other hand, the receiving wife will no longer have to claim the alimony as income for tax purposes.

Another aspect of alimony that may be affected under the new law is certain prenuptial agreements. Some couples, before they get married, structure their prenuptial agreements to include fixed payment amounts for alimony in the event of divorce. The loss of tax savings for the payer, and the payee not being required to claim the payments as income, could change the way couples feel about their agreements. On the other hand, here in Michigan, prenuptial agreements themselves are in a state of flux. Important rulings from our appellate courts call into question the validity of many prenuptial agreements.

There is also the issue of how this will affect tax brackets. How much you earn every year determines which tax bracket you fall into. And your tax bracket determines how much tax you pay. So the spouse who formerly deduced the alimony, will now likely end up in a higher tax bracket, while the spouse who receives the alimony but doesn’t have to report it as income will likely end up in a lower tax bracket.

Do you need help with your alimony agreement in Michigan?

If you or a loved one are considering divorce, 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. There’s so much at stake in divorce, especially when you consider the new tax laws. So don’t try to deal with 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.

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