JACKSONVILLE, Fla. – If you are considering a divorce, now may be the time to do something about it -- if alimony will play a role in your separation. A new federal tax law that takes effect next year might cause additional complications and anxiety for couples calling it quits.
The new federal alimony tax
The new Tax Cuts and Jobs Act reverses who pays taxes on alimony payments. For more than 70 years, the tax law allowed the higher-earning spouse to deduct the alimony they paid to their exes, while the "receiving" spouse was the one taxed at his or her income bracket.
However, starting Jan. 1, 2019, that will reverse. The higher-income spouse will lose the alimony tax deduction -- meaning they will have to pay federal taxes on it. The "receiving" spouse will no longer have to claim that alimony payment as income -- meaning he or she will no longer have to pay the tax.
Who is effected by the new alimony tax law?
The new tax bill affects divorce agreements signed after Dec. 31, 2018, while divorces settled before that date will be grandfathered in under the old tax bill.
Michelle Barron, a certified financial planner who has a lot of clients that pay alimony, said this reversal isn't good for her clients or their alimony recipients.