If you’re contemplating divorce, one of the many things for you to consider is the possibility that you may be required to pay alimony (often called maintenance) to your ex for some length of time, possibly indefinitely. While the origins of this practice were appropriate many years ago when the man was often the bread-winner in the family and the wife’s role was to manage the household, the modern times have partially obsoleted the need. Despite the fact that this is an outdated practice, the laws are fairly clear. IF you earned more income than your spouse, you will probably need to pay her after the divorce is over to allow her to maintain the lifestyle that she was accustomed to living.
While the practice is unpalatable (at best) to those obligated to pay, the IRS softened the blow a bit with Section 215 of the tax code that allowed the payer to deduct the amount of alimony he paid from his taxable income. Unfortunately there is a change in the tax plan that President Trump just signed into law which eliminates Section 215 of the tax code entirely.
This means that alimony and support maintenance payments can no longer be tax deductible by the payor spouse, and alimony and support maintenance payments do not need to be included as income by the receiving spouse. The change will apply to anyone who finalizes their divorce after December 31st, 2018.
The new law will cost you thousands of dollars if you are the higher income earner who is obligated to make alimony payments. For example, if you’re required to pay your ex-wife $3,000 per month ($36,000) per year in alimony and your federal tax rate is 33%, you can currently deduct $11,880 from your income. If your divorce is finalized in 2019 or beyond, you lose the ability to take this deduction.
If you’re currently considering a divorce or in the middle of the process and expect that your ex will demand alimony, it’s in your best interest to wrap everything up by the end of this year. If you are a high earner, you could lose out on thousands of dollars without the alimony deduction.
Get the Guy’s Divorce Guide and help get prepared for your divorce.