Tax Reform’s Effect on Spousal Support

The Tax Cuts and Jobs Act of 2017, signed into law by President Trump on December 22, 2017, includes a change that will have a big effect on divorcing parties in the coming year. Beginning on January 1, 2019, spousal support also known as maintenance or alimony, will no longer be deductible for tax purposes. Under the current law, the party receiving spousal support is required to pay taxes on that support while the party paying the spousal support may deduct the amount paid from their income. Beginning in 2019, however, no such deductions will be allowed, which means that the paying spouse will bear the entire tax burden for the money used for spousal support.

This change will take effect for any divorce or separation instrument executed after December 31, 2018, as well as for any prior divorce or separation instrument that is modified after December 31, 2018 if that modification states that the new law will apply. This means that anyone considering a divorce in the coming year will need to strongly consider whether they want to take advantage of the old law before the new law takes effect. The tax implications of spousal support is often an important issue in the negotiation of a divorce settlement, and the change in the new law will likely create tax liability increases in the thousands of dollars for high income spouses paying support after a divorce. Any settlements negotiated after December 31, 2018 will have to take this into account.