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Longwood Divorce Attorney Explains Tax Reform and Alimony in Florida


“Do you know how the 2018 tax bill can affect your Florida alimony payments?”

Everyone has heard of the new federal tax reform bill. Titled the Tax Cuts and Jobs Act (TCJA), it brings sweeping changes to the US tax code.

But unless you are dealing right now with a divorce, you may not be aware of the consequences you could face regarding alimony.

The tax reform affects dozens of tax deductions, including alimony. Our Longwood divorce lawyers proactively ensure that our clients consult with CPAs and other tax experts to advise both payor and payee spouses who have concerns about Florida alimony arrangements under the new tax law.

How Florida Alimony Works Right Now (Before Tax Reform)

Longwood divorce lawyer separating high asset couple

For current divorce arrangements, alimony payments (a.k.a. spousal support) are generally regarded as taxable income for the recipient. The higher-earning spouse—who pays alimony to the lower-earning spouse—can effectively reduce their income by the amount that they pay in alimony. The tax break often mitigates the costs of alimony to the paying spouse, as some portion of the money would be subject to income tax if it were not being paid as alimony.

For example, under the previous law, if you were paying $50,000.00 a year in alimony, your income would be reduced accordingly. Taking the example further, if the tax rate on that $50,000.00 alimony payment were 39.5 percent, without an alimony order you would retain that $50,000.00, but would pay $19,750.00 in income tax on that retained money; therefore your net cost on paying that $50,000.00 as alimony would be $30,250.00, considering the income tax cost.

If you are the receiving spouse, you pay annual income taxes on the payments. The changes in the tax laws will effectively eliminate the opportunity to take a pre-tax deduction of alimony so that there will potentially be no future tax savings in paying alimony.

Under the old law, the paying spouse, who was usually a higher earner and subject to a higher tax rate, deducted the alimony payments at a higher tax rate while the lower earning spouse, who accepted the payments, reported the alimony as income and paid tax on it at a lower tax rate.

This created an opportunity to create value in dealings between the parties. Under the new law, this opportunity to create value will be effectively eliminated.

The tax deduction under the old tax law was a major consideration for paying spouses, especially those who are in upper tax brackets. Many spouses were able to work together to alter property settlements, child support, and alimony payments so that they collectively created value and found a win-win solution.

When done properly, the old tax law and alimony system allowed divorcing spouses to retain and distribute more money.

These savings presented a great opportunity and were a big help when it came to offsetting the cost of separate households. Tax-saving benefits were passed on to both parties.

What Alimony Will Look Like Under the New Tax Law

Under the new tax law, the paying spouse will not get a deduction for alimony. The recipient spouse will not have to pay taxes on the alimony that they receive. Because of these changes, it will be especially important for divorcing spouses dealing with alimony matters to consult with both an experienced divorce attorney and a tax expert, like a CPA.

The new tax law will generally apply to:

  • Divorce or separation agreements that are enacted in a final judgment on or after January 1, 2019. Alimony payments executed before this date are taxed under the old law.
  • Divorce modifications enacted on or after January 1, 2019, and the modification orders directly state that TCJA tax changes apply.

Essentially, alimony moving forward will be handled in the same manner as child support, which is not considered a tax deduction or taxable income.

How Will The Tax Reform Affect Your Alimony Payments?

Depending on whether you will be paying or receiving alimony, you want to know if you should speed up or slow down your divorce accordingly.

For many spouses who will pay alimony, it makes sense to get the ball rolling and establish your alimony payments right now while you can still deduct those payments from your income — because anyone paying alimony in a divorce enacted after December 31, 2018 may not be able to deduct those payments.

What about the person receiving alimony? While it may appear that the recipients are on the “winning end” of things under the tax reform, the analysis is much more complicated.

Because the collective pool of money available to the parties will likely be diminished under the new tax law, spouses on the receiving end may suffer as well.

Depending on the circumstances, it may be to their benefit to hold off until 2019, when they are no longer required to pay taxes on alimony. But such an analysis will require the advice of a skilled divorce lawyer and an expert tax professional, like a CPA.

Whether you want to hustle up or wait, it is wise to stop and look at the bigger picture. No two situations are alike. What may seem to be a good plan for one situation, may be a mistake for another.

Implications and Realities of Florida Alimony under Tax Reform

  • Spouses receiving alimony may have an incentive to hold off on finalizing the divorce or separation agreement until 2019 when payments will be tax-free.
  • While spouses receiving alimony might expect more money under the new system, in some cases this could backfire. With less incentive or ability to pay on the part of the paying spouse, alimony amounts may be significantly lower than before.
  • Alimony as a tax deduction has always been a bargaining chip in divorce negotiations – keeping divorces out of court. Under the new structure, higher-earning spouses may be less willing or charitable when working out an alimony payment.
  • Negotiations in divorce settlements may become more complicated and increase the possibilities of more cases going to litigation.
  • Current prenuptials and postnuptials will also be affected. The Tax Cuts and Jobs Act will affect situations in which couples work out pre- and post-nuptial agreements. The old structure of alimony tax deduction and taxable income is likely drafted into these agreements.
  • Because the new tax reform law is still new, there will continue to be updates and clarifications on the law and how the law will be implemented. It will be important to remain vigilant in keeping up with the most current understanding of the new tax law and divorce law.

Considering divorce? Consult a Longwood divorce attorney today.

The new tax law will change the way in which your divorce agreements are negotiated and structured. Finding the right attorney is an essential first step; finding a tax expert to advise and be available through the divorce process is also essential.

Especially now, Florida alimony is a matter to be resolved by an experienced divorce lawyer. TK Law takes every measure to protect your rights in all aspects of your divorce.

To discuss how alimony will be addressed in your divorce, contact Longwood divorce attorneys who are prepared to assist you now.

*The subject matter on this page is not to be construed as tax advice or an advisory opinion concerning the new tax law. TK Law has attorneys that are experts in divorce, but we do not offer tax advice; instead, we will either work closely with an expert concerning financial matters or advise you to consult a CPA or tax attorney concerning tax matters.

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The Orlando divorce lawyers at TK Law are deeply committed to the individuals and families they serve. We are here to help you resolve each legal concern so you can regain control and move forward with your life. You will also have a steadfast, accomplished advocate in your corner to fight for what matters most if a dispute goes to trial.

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