Senate and House republicans recently reached an agreement on the final tax bill which was signed by President Trump today. The impact of tax reform and divorce law may be significant.
The tax reform law goes into effect on January 2018. However, as everyone knows we file taxes in April for the prior tax year so most won’t feel the impact of tax reform and divorce until April 2019 when 2018 income taxes are due.
Under current law (IRC 71 and IRC 215), former spouses who pay alimony can deduct the expense from their federal income taxes and former spouses must claim the money as taxable income. Like water and vinegar tax reform and divorce will not mix very well because tax reform eliminates the tax deduction for alimony payments.
Many Michigan divorce cases include an award of alimony, especially in circumstances where there is a large disparity of income. Since the person paying alimony is typically in a higher tax bracket than the person receiving alimony, the taxes paid by the alimony recipient are less than the tax deduction awarded to the person paying alimony. According to Forbes magazine, the alimony provision is projected to raise about 8 billion in tax revenue over 10 years. This equates to 100 million dollars in lost tax exemptions per year for persons paying alimony.
The impact of tax reform and divorce on alimony
Law makers considered the tax deductibility of alimony a divorce subsidy, however, the impact on a dependent spouse can be huge. In every marriage there are limited marital resources to divide and for many dependent spouses, child support, and alimony are the primary sources of income until they can get back into the workforce. The loss of the tax deduction on alimony will mean there is less money available to pay alimony (think after tax dollars vs. pre-tax dollars).
As Forbes magazine stated. “[When] the Tax Cuts and Jobs Act takes effect, it would clearly make a difficult and painful experience more difficult and more painful.”
At Findling Law, we will rise to the occasion and find creative alternatives to remedy this situation and limit the impact of tax reform and divorce. That’s what we do and that’s what we have always done.
About Findling Law
Findling Law, PLC – 414 W. 5th St. Royal Oak, Michigan 48067
I have been exclusively practicing divorce and family law in Michigan for over two decades. The attorneys at Findling Law all share the core value of practicing law to help people navigate change in their lives, without compromising principles. We specialize in high socio-economic, high-profile and high-conflict cases, while also working with clients of all backgrounds. We recognize that the most important aspect of the practice of law is the application of the law to your specific circumstances.That is why we provide more free information on divorce and family law than any other Michigan law firm. We want to help you manage your situation. Allow our exceptional legal team to help you navigate the change in your life, without compromising principles.
By: Daniel Findling