Alimony tax deduction eliminated

The alimony tax deduction has been a staple of divorce law for a long time. The issue first arose to prominent in the U.S. Supreme Court case of Gould v. Gould, 245 U.S. 151 (1917). In Gould, the U.S. Supreme Court ultimately found that alimony was not tax deductible.

In 1942, Gould was overruled by the Revenue Tax Act of 1942. Since that time, alimony (also known as spousal maintenance) has been tax deductible in divorce matters. Litigants in divorce matters have come to rely on the fact.

However, under a new tax bill that was presented to President Trump, the alimony tax deduction will be eliminated starting in 2019. This bill was signed by President Trump at the end of 2017, despite the objections of many.

By the language of the new law, the alimony tax deduction will cease to exist for alimony (or spousal support or maintenance) for awards entered after the end of 2018. The result is that there is a year period for states to figure out what, if any, changes they will make to their alimony/maintenance laws. This new legislation does not alter prior maintenance awards that specifically allowed for alimony to be deductible.

It might be that some states will make changes to the alimony/maintenance laws and formulas given this new tax bill. But nobody really knows for sure whether this will happen or not. Nonetheless, the impact on how divorce matters are negotiated could be significant.

The reality is that starting in 2018, payor spouses will no longer be able to deduct alimony/maintenance payments on their taxes. The receiving spouse will in turn receive their alimony/maintenance payments tax free.

This will, in the opinion of many, result in a greater financial state for those receiving alimony/spousal maintenance. Many also opine that payor spouses will be less willing to pay alimony/spousal maintenance through settlement. Instead, they will opt to try their divorce (versus settling it) because they no longer receive a tax break.

Some also theorize that family court judges might be less inclined to enter large alimony/spousal maintenance awards when the payor spouse cannot deduct it on their taxes. Yet, this is all conjecture at this point. Nonetheless, it will be interesting to see how this impacts divorce cases in 2019 and beyond.

If you are involved in a divorce where spousal maintenance is an issue, you can call 855-805-0595 or contact us online.