Federal Tax Changes Create Uncertainty In Divorce...

Recent news articles highlight the fact that confusion and uncertainty continues to linger following last year's changes to the federal dollar-for-dollar tax deduction for alimony payments. The law is set to take effect December 31 of this year. Until that time, parties finalizing their divorces will be governed by the prior rule wherein alimony is a tax deductible event to the payor and taxable as income to the payee. Following the new rule taking effect, alimony will no longer be an eligible deduction.

A report prepared by New Jersey Alimony Reform commenting on the impact of the new law, and sent to Governor Murphy earlier this year, noted, "The two households created by a divorce simply cannot function as cheaply as the single household of an intact family... The present tax structure that helps ameliorate those burdens has now been eliminated." Many in the field lament the loss of what is generally deemed a useful tool for settlement. And while some experts suggest that parties may in fact choose to stay in bad relationships out of fear that they cannot afford to divorce, others believe that the rule change will result in more litigation, as the perceived new leverage of a payor is pressured against the ever present financial realities and needs of the dependent party. Either way, the rule change has created a series of problems (i.e. are post-judgment modifications to agreements entered pre-rule change subject to the new rule?) that only time will help resolve.

For further reading:

https://www.nytimes.com/2018/07/02/us/politics/new-tax-law-rich-divorce.html

https://www.usatoday.com/story/money/taxes/2018/03/12/divorce-under-new-tax-law-may-get-more-complicated-getting-divorced-how-new-tax-bill-may-complicate/376837002/

https://www.cnbc.com/2018/02/16/loss-of-alimony-tax-break-in-tax-law-may-inflame-divorce-negotiations.html