The Tax Cuts and Jobs Act, originally introduced on November 2, 2017, has major implications on support payments to former spouses (i.e. Alimony). Alimony payments have historically been tax deductible and includable in the recipients income. The loss of this deduction can create a sizable tax burden for the payor. In Massachusetts, the standard for alimony has not changed. It has always been based on the recipients need versus the payors ability to pay, not to exceed 30-35% of the difference between the parties’ gross incomes established at the time of the order being issued. Hypothetically if the wife is makes is employed and makes $200,000 annually, husband does not work with no income. The parties come to an agreement of an alimony order of 33% of the difference between the parties income ($66,000), wife’s support order to husband would only be $47,570. However, the new law’s treatment of alimony applies to spousal support paid under a divorce instrument executed after December 31, 2018, meaning as of 2018 an alimony support order of $66,000 would actually cost the payor $66,000 or $18,480 more in gross income than if it was still tax deductible.
If you are contemplating divorce and foresee yourself possibly, time is ticking and you want to work with an attorney to complete a divorce settlement prior to the end of 2018. work with your attorney to complete your marital settlement agreement before the end of this year. If you are currently paying alimony, the new law grandfathers the alimony tax deduction for all divorce instruments executed prior to 2019. Any modifications of alimony orders prior to 2019 would also be grandfathered unless the modification expressly states the new tax laws of alimony are to apply.
Prenuptials typically assume that alimony would remain tax deductible. If you have a prenuptial agreement, you may would to consider calling an attorney to add language that expressly states how alimony will be addressed after the new tax laws take effect or the payor of alimony could be contributing much more than anticipated at the time of contract execution. Having a lawyer review your prenuptial agreement prior to the end of the year is crucial.
This post was written by Maria Tilkens