Want a Divorce? Then do it Right Now or Pay a Much Bigger Tax Bill

The 2017 Tax Cuts and Jobs Acts has another card to play that will be laid down on January 1st of 2019 – the tax burden on alimony will shift from those that receive it to those that make alimony payments. Alimony will no longer be taxable income and therefore there will not be any more tax deductions for the typically higher earning divorcee that is sending spousal support checks.

This change will effect both the uber elite, with their massive amounts of assets and cash, and the middle class families with a single income earner. Because the payers of alimony are almost always in a higher tax bracket than their exes, the new rules will mean less after-tax money to go around.  For those embroiled in a current divorce case, attorneys are attempting to finalize and settle them before the end of the year.

The threat of losing the deduction is accelerating the process. Peter Walzer of Walzer Melcher, a law firm in Los Angeles, said one of his clients got a call from her husband, urging her to speed up the proceedings after he learned about the tax law change. The irony is that previously he had been the one slowing down the divorce, Walzer said.

Even spouses who have not started divorce proceedings are wondering if they should rush to get a deal done before year end. Sucherman, who works at San Francisco-based Sucherman Insalaco, said he’s getting inquiries from potential clients, some who are not even separated yet.

See Ben Steverman, Want a Divorce? Then do it Right Now or Pay a Much Bigger Tax Bill, Financial Advisor, November 2, 2018.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.