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Tax law affecting alimony takes effect in 2019

| Jan 4, 2019 | Family Law |

Couples divorcing in Wisconsin in 2019 may experience challenges in reaching an agreement thanks to a new provision of the Tax Cuts and Jobs Act, which took effect as of January 1st. The law affects how the federal government taxes alimony payments. 

As BNY Mellon Wealth Management points out, the law does not affect existing settlements but only those agreements executed on or after Jan. 1st, 2019. That does not mean, however, that the law automatically applies to divorces finalized after January 1st. If the couple filed a written separation agreement on or before Dec. 31st, 2018, the law will grandfather them in and the previous tax rules regarding alimony payments will still apply. However, for those affected, the change will remain in place unless Congress takes future action to reverse it, unlike many other provisions of the law which have a built-in expiration date.

According to CNBC, under the new law, the alimony recipient will not pay income tax on the payments received, while the spouse who pays alimony will not be able to deduct the payments from his or her income taxes. This is the reverse of how tax laws applied to alimony in the past.

As the law is still in its infancy, the effect the changes will have in the arena of family law is difficult to predict. For example, one expert says that the change may cause some couples to stay together unhappily due to an inability to afford alimony payments, while another predicts that more divorce cases may go to court now because mediation may be insufficient to resolve spousal maintenance issues.

It is unclear at this time whether a modification of a previous settlement will result in a lower tax bill for the alimony recipient. There is also concern that the paying spouse may argue that he or she cannot afford higher payments without the deduction, and alimony recipients may end up receiving less money as a result.