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Alimony tax benefit continued for one year

Many aspects of divorce and finances come down to timing. However, couples who are ending their marriage have almost one additional year to claim the federal tax deduction for paying alimony.

The congressional tax bill contained a controversial provision that would end the federal tax deduction for paying spousal support. Under earlier tax law, spouses who paid spousal alimony could deduct the payments from their taxes for the full amount, while recipients reported it as ordinary income. Child support was not deductible.

Opponents of this change argued that removal of this deduction would add to the financial burden of the paying spouse. Additionally, it could lead to more disputes during divorce and harm less-affluent spouses by depriving them of needed alimony income.

The removal of this deduction could also have a long-term impact on child support payments. These payments are negotiated at the same time as alimony, and calculations often rely on the amount of spousal support.

These tax changes and ramifications could impact many people. In 2015, approximately 800,000 married couples divorced in this country. Older married couples had higher rates even though rates for younger spouses declined. The divorce rate doubled for spouses over 50-years-old.

The final approved bill, however, pushed off these disavantages for almost one year. The new tax requirements would govern divorce or separation agreements negotiated after December 31, 2018.

One lawyer also said that language in the new bill would allow settlements renegotiated after that date to include language that allow the spouses to decline the new federal tax requirements for alimony. It was recommended, however, that spouses should presume that the deduction was lost and add language to renegotiated agreements. The amended agreements should contain a clause that it could be renegotiated for a more appropriate allocation of payments if the tax treatment of the support payments turns out differently than the parties' expectations.

An attorney may help a spouse prepare for the financial and tax consequences of divorce. They can present options and seek a decree that protects a spouse's finances.

Source: Bloomberg, "Why you don't have to rush to get a divorce before 2018," Alexis Leondis, Dec. 18, 2017

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