The clock is ticking on the new tax law change for divorcees across the United States. Alimony is tax deductible by the person writing the checks and taxable to the person who cashes them. But this will not be so for those divorcing in 2019 and beyond. Our legislators in Washington DC have seen fit to eliminate this tax break, even though rumor has it that the members of Congress pay a lot of alimony! But kidding aside, this change may result in billions in tax revenues for the federal government.
Here in the Garden State our tax authorities and hard working legislators have not gotten around to making any changes to our law, so for those divorcing in New Jersey the tax is still yours to deduct and/or pay, depending on your side of the equation. Lawyers are scrambling to determine how to set alimony for future cases. Alimony decisions in divorce, which were always unpredictable in the best of cases, have now risen to the level of an enigma. For example, if there is no longer a tax benefit to the so-called “monied spouse” for paying alimony, should he/she pay less? Probably. But how much less? And as for the spouse who needs the support to make ends meet–at first glance he/she may think “no tax on my alimony? what’s not to like?” But getting less alimony is never fun.
So what was so great about alimony (prior to 2019)? Well, if the paying spouse was in the 30% bracket, he/she would get a nice tax break. If the recipient spouse was in a low tax bracket, as is often the case, receipt of the alimony would barely make a blip in the tax they owed at the end of the year. Alimony was truly a boon to both divorcees: they were putting one over on the Feds by keeping money in their pocket that would normally go to our least-favorite-uncle (Uncle Sam).
Alas–the party is over. Uncle Sam is here to collect. Who loses? Both spouses.