“The new tax law is playing havoc with divorce planning,” says Jeffrey Schneider, an enrolled agent with SFS Tax & Accounting Services in Stuart, Florida.
What’s the fuss about? “Under the new law, alimony is no longer tax-deductible by the payer, and those alimony payments are tax-free income to the recipient,” says Marcy Keckler, vice president of financial advice strategy at Ameriprise in Minneapolis.
This is a game changer. “Divorce attorneys used to use the alimony tax deductibility to play against the child support non-tax deductibility in order to minimize tax burdens on the family and net more for everyone at the end of the day. Now, with the elimination of the deduction, we can’t do that. The result is that there is less wiggle room to negotiate support obligations, and high-income earners will be less willing to pay alimony,” says Gabriel Cheong, an attorney in Quincy, Massachusetts.
“Before you file for a divorce, it’s important to consult with a legal professional to make sure that you and your spouse understand the implications of tax reform on divorce and alimony, specifically,” says Christina Taylor, head of operations at Credit Karma Tax at CreditKarma.com.
Also, if you’re planning on receiving alimony from the divorce settlement, you’ll want to see if you and your spouse can agree on a fair alimony payment before divorce proceedings. If not, prepare a strong case for the amount you’re asking for, since the absence of a tax deduction for your spouse could end up causing some pushback.