As of January 1, spousal support will no longer be tax deductible
In divorce, spousal support is often a point of contention which takes time to negotiate. However, considering the changes in tax law taking effect the first day of 2019, time is of the essence if you want to use your spousal support payments as a tax deduction.
How the new tax laws will affect you after divorce
Spousal support payments will soon be drastically affected since new laws prohibit their deduction on your tax return. With changes to the law entering into the equation, your divorce may look a little different.
In the past, spousal support payments qualified as a tax deduction, often providing a substantial reduction in tax liability for you, as the payor. Your former spouse, on the receiving end, reported spousal support as income, thereby affecting his or her tax liability as well, though likely to a lesser degree.
However, without the ability to deduct spousal support payments, changes may include:
· You have increased tax liability and, therefore, reduced disposable income
· Your former spouse will likely receive less support
· More money could go to taxes than household expenses, potentially indirectly affecting your children
Though the anticipation is that middle-class families, especially the women, may experience the greatest difficulty with this change, it will affect all couples who divorce.
Compensating this new rule into your divorce
Agreements made after December 31, 2018 may result in a higher tax rate for you, as well as lower payments for your former spouse. As a result, it may be best for you, and for your family, to take a long look at how your taxes will be impacted once you finalize your divorce and begin spousal support.