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How the new tax plan will impact divorce

Ever since the end of World War II, alimony has been tax deductible. Under the current federal deduction, alimony payers may pay as low as 60 cents on the dollar. Law makers have held a long-standing belief that this deduction was fair—that the government shouldn’t tax someone for money that was never available for them to spend in the first place.

However, the passing of the Tax Cuts and Jobs Act will change all of that. Under the new law, the alimony tax break will be repealed starting in 2019. Experts expect this change to have a tumultuous impact in divorcing couples.

Take, for example, an ex-husband in the 24 percent income bracket. Previously, he may have been willing to pay his ex-wife $4,000 a month in alimony—which, after the tax break, only cost him $3,000. This steep tax break has proven to be an effective way for divorcing couples to reach settlements—and avoid drawn-out legal battles.

Once the tax break is repealed, however, that $4,000 alimony payment would equate to a $4,000 loss for the alimony payer. Consequently, alimony-owing exes are projected to be less willing to pay as much, since they will no longer get a tax break. They will be less open to negotiation in divorce, which could hurt vulnerable alimony recipients—usually women—who may rely on alimony to live.

While many aspects of the new tax law already went into effect at the start of this year, the repeal of the alimony tax break won’t happen until 2019. Some divorce experts are viewing this period as a window of opportunity. They caution separated couples against waiting to file for divorce, holding that divorcing while the tax break is still intact will lead to a less acrimonious process for everyone involved.

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How the new tax plan will impact divorce | Peter A D'Angelo, Attorney at Law, PLC