What was once a constant in American tax law has recently changed, and has people clamoring to understand the long-term impact. The recent loss of the long-standing alimony tax break has some questioning whether it will add to the financial discomfort of divorce. Attorneys and other divorce professionals are scrambling to understand the new policies and react to them. In Wyoming and other states, some are worried that the change may make for messier divorces, but the jury is still out as to how exactly the change will affect those undergoing divorce.
The new laws do not go into effect until 2019, so divorces finalized this year will not be affected by the new law, which makes alimony payments no longer tax deductible, and alimony income no longer taxable. Spousal support guidelines vary widely from state to state, but the federal tax treatment was a policy that many calculation tools relied upon. Many of the calculation tools will now be obsolete, and states must devise new methods.
Individuals facing divorce are asking if they should consider revising old support agreements, but it is still unclear whether revisions will need to comply with new tax rules. The new policies may also affect how willing a person is to make large support payments, since he or she will now face an increased tax burden. A recipient may end up receiving less money, and he or she may not be able to use it to contribute to certain retirement accounts, since some contributions must be from taxable income.
Divorce can be a challenging time for some individuals, and the added stress of changes in the law may increase the level of confusion. Some people will want to choose a person to help them decide on the many details of divorce, alimony included. An experienced and knowledgeable family law attorney can be of assistance to individuals in Wyoming.
Source: CNBC, “Loss of alimony tax break in GOP bill may add to the financial pain of divorce“, Annie Nova, Feb. 4, 2018