As previously written about on this blog, the Federal Tax and Jobs Act modified alimony so that it will no longer be a taxable event effective January 1, 2019. That means that alimony will not be taxable to the recipient and that the person paying alimony following a divorce will no longer be able to claim alimony as a tax deduction.
The current status quo was for alimony to be a taxable event to the person receiving alimony and that the person paying could deduct alimony. As the person paying alimony is generally in the higher tax bracket this change was made at the federal level to support some of the tax deductions as part of the Tax Act. The January 1, 2019 starting date may feel early, but earlier drafts of the Tax Reform Act had the alimony change going into effect January 1, 2018. Even still, many are scrambling to finalize their divorces this month to avoid potential issues–particularly in cases where the parties have already reached terms on a Marital Settlement Agreement.
Moving forward there will be some confusion as divorce attorneys and judges will have to learn how to tax-effect future divorce agreements to not provide an unfair advantage to either party and to ensure consistency with the current status quo. That will likely mean that individuals will pay less (in terms of the actual number) for alimony but will effectively pay the same as they would have been required to prior to the tax code changes.
It should be noted that most pendente lite alimony awards are unallocated and/or mixed with child support payments and therefore are generally already not taxable events.
It will be an interesting new year in the divorce law arena addressing these changes in a fair manner for all.
If you are ready to move forward with a New Jersey divorce contact Carl Taylor Law, LLC today at 908-237-3096 to schedule a comprehensive divorce consultation.