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New tax law eliminates deduction for alimony

The sweeping federal tax bill that was signed into law just before the end of 2017 will affect many aspects of life for North Dakotans. One of the most talked-about provisions is the change in the tax treatment of spousal support payments.

Under the current law, the ex-spouse who pays alimony may deduct such payments from gross income, thereby reducing their taxable income. The ex-spouse who receives such payments must include the payments in their adjusted gross income before calculating the resulting tax. According to tax law experts, this provision generally means that the spouse with higher income winds up paying alimony, while the spouse with fewer assets generally winds up as the recipient. This set up preserves more overall income that can be allocated between the divorcing spouses to assist them in living separately.

This will all change for divorce cases filed on or after January 1, 2019. The new tax law eliminates deductibility for the paying spouse, while also excluding such payments from the recipient's adjusted gross income. Thus, higher earning spouses may no longer be willing to make high alimony payments because those payments will not result in any tax savings. The elimination of the income tax on alimony for the lower-earning ex-spouse will not, however, result in a sufficient increase in gross income to offset the decrease in alimony payments.

Supporters of the change say that it removes a "subsidy" for divorce. Opponents say the change will make negotiating a divorce settlement more difficult. It is far too early to make any reliable predictions about how future divorces will treat alimony. The only certainty is that divorcing couples may wish to consult an experienced divorce lawyer for advice on the impact of the new tax law on their specific situations.

Source: PBS.org, "How the tax overhaul will affect alimony deductions," Jennifer Peltz, Dec. 22, 2017

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