HOW DOES THE NEW TAX CODE AFFECT how ALIMONY PAYMENTS are treated AFTER DIVORCE (AND DURING NEGOTIATIONS)?
The new tax code is still being sorted out by all the tax experts but it sure looks like it will affect how alimony payments are treated in the near future. Prior to President Trump’s tenure us president, alimony payments were taxable to the recipient and deductible to the payer. So this means that when couples negotiated alimony in the past, the spouse who had to pay it would feel secure in knowing that they could get a tax deduction and so the conventional wisdom was that they would be more inclined to be more generous. At the same time, the spouse who received alimony would get taxed on it but still, because he or she would be inclined to a bigger payout on account of the fact that the paying spouse got a deduction, getting taxed still resulted in a net gain for said recipient spouse. So it was kind of win win.
With the new rules, the recipient spouse will NOT have to pay taxes on alimony but because he or she will be getting significantly less (since the paying spouse cannot take a deduction) this will result in a net loss for recipient spouses.
As of this writing, women are still more likely than men to be the recipients of alimony after a divorce. So with the new changes in the tax code, these women will find that their post divorce household incomes will be comparatively less than it would have been under the old tax regime.
If these women had other expenses such as student loans, this could be an even more dire scenario as the new code plans to make income-sensitive payments a thing of the past. So alimony payments could be the least of your headaches.