I wanted to share with you a video I did...
Something interesting is going on and I wanted to share this with you. I did a video on the tax law change regarding alimony and posted it on youtube. I shared it with some local Maine attorneys to help them get spun up. Not one lawyer called me.
Not one divorce attorney called or emailed me about a potentially huge change to divorces in America. BUT! Three regular folks found my video and called me. One in New Jersey, one in North Carolina and now one in Kentucky.
The feedback has been good and so I realized that maybe I should have talked to the people who matter, those who have to live with the consequences of the tax law change. So I am sharing the link to my video here in the hopes that it will help those who actually care about avoiding trouble with the IRS regarding their alimony deduction. https://youtu.be/1Uz2VnTH5zs
For those of you who may not have time or desire to watch the video, here is a quick explanation of the change and how it may impact you or someone you know.
What is happening with Alimony in 2019 and beyond
The Tax Cuts and Jobs Act of 2017 radically changed how alimony is treated for tax purposes. Previously if a couple was getting divorced and alimony was to be paid than the person paying would get a deduction. The recipient would then pick up that alimony as taxable income.
Very often the person paying alimony was the higher earner and taxed at much higher tax rates. By deducting the alimony, he or she often saved more money in taxes than the receipient paid in taxes on the money received. We call this playing the rates.
Flash forward to January 1, 2019. As of now, all alimony payments are nondeductible if paid as part of a divorce agreement signed in 2019. No exceptions. And that change is permanent, unless changed by Congress. Prior alimony payments are not affected, unless the parties agree otherwise (what are the chances of that!).
How this impacts divorces in 2019 and thereafter
The biggest change is that divorce is going to get messier...and likely more expensive. Many couples are going to find different and creative ways to get around these rules. For example, I have seem more divorces using transfers of property to replace alimony. IRAs and 401ks are often the two big assets of the marriage, besides the home.
Another change is that alimony payments are shrinking. If it will cost more, in a tax sense, to pay alimony than judges have to take that into account when deciding on how much is paid in alimony. This is certainly going to make it harder on the recipient spouse who may need to get a job to cover expenses.
This is just the tip of the iceberg as I am sure other unintended consequences start cropping up. I hope you found this helpful for your knowledge and maybe to help people you know.
If you or someone you know in the Portland, Maine area has questions about how the new alimony change may impact their life, please feel free to contact me directly at 207-747-5318 or by filling out my contact form.
James D. Wade, Esq.
Law Office of James D. Wade
53 Exchange St., Ste 400
Portland, ME 04101