New divorce tax laws change how alimony is calculated

New divorce tax laws change how alimony is calculated

On Behalf of | Dec 5, 2018 | Alimony And Child Support, Firm News |

Money is a sensitive subject. It can cause people to behave differently than they normally would and can cause arguments between even the closest of family members and friends. One of the most dreaded parts of a divorce for many couples is coming to an agreement on finances, especially alimony. Some couples currently going through a divorce, however, are working together and making an extra effort to come to an agreement on their financial arrangement before the end of the year. Divorcees in Wyoming and across the country are attempting to get their arrangements finalized before tax laws change in 2019.

Under current laws, alimony is tax-deductible for the spouse who is paying the alimony. That amount is deducted from the payor’s income before income tax is calculated. The other spouse, who receives the alimony payment, is the one who claims the alimony as income and pays taxes on it. Under the new laws, that is reversed, and the payor pays income taxes on their full income, and then the alimony is paid to the other party afterward. The payee does not include the alimony as income on his or her taxes.

Some say the new laws will benefit the payee, but others say it will negatively affect the payee as well as the payor. This argument is based on the idea that the payor typically makes more money and is more likely in a higher tax bracket than the payee. This means that the alimony payment is taxed at a higher rate when deducted by the payor than it would be if reported as income by the payee. This results in less overall profit for the payor, therefore reducing the amount he or she would have available and thereby reducing the alimony payment amount.

The best option for anyone getting divorced is to consult with his or her divorce attorney. An experienced Wyoming attorney can guide clients through the entire process and explain to them how current and upcoming laws will affect alimony as well as other factors of their divorces. The attorney can assist clients with the approach they need to take in order to achieve the most positive financial outcome.