Tax reform will have big impact on divorce

Tax reform eliminates the alimony deduction. Before the new tax law, spouses paying alimony to an ex could deduct these pay- ments from the amount of income they were taxed on. This would often be enough to move that spouse into a lower tax bracket, which would result in all of his or her taxable income getting taxed at a lower rate.

The spouse receiving alimony, however, would pay income tax on those payments. This is flipped under the new law. The paying spouse can no longer deduct alimony payments, while the recipient spouse gets his or her alimony tax free. This is a good deal for the government because the spouse paying alimony is generally in a much higher tax bracket than the spouse receiving it, meaning the government will make more money by increasing the paying spouse’s taxable income than it did from taxing the receiving spouse on the payments. This won’t apply retroactively. It applies to divorce and separation agreements signed on or after Jan. 1, 2019.