There are many changes in the new tax law that was signed into law on December 22, 2017. One way in which the new law will affect divorcing couples is through the elimination of the alimony deduction. Spouses who are ordered to pay alimony to a former spouse will no longer be able to deduct these payments from their federal income for tax purposes.
Under the former tax law, a person who was ordered to pay alimony was allowed to deduct the monthly payments from their income. This could make a significant difference if the person making the payments was ordered to pay a large sum in alimony. In Illinois, spousal maintenance is not mandatory, it is awarded if a court makes a determination that maintenance should be awarded. A couple can also agree that maintenance will be awarded and determine the amount, either before the marriage or after. The ability to deduct this income could be a factor in negotiating the amount of alimony to be paid if the couple was proceeding by agreement. It may also affect how prenuptial agreements regarding alimony are drafted.
Previously, the spouse receiving the alimony payments would not get the money tax free and would have to report it as income and pay taxes on it. This provision changes with the new law and the spouse receiving the alimony payments will not have to pay taxes on that income. This may create an incentive for a spouse who will be receiving alimony as part of a divorce to delay the finalization of the divorce until 2019.
The new changes essentially mean the spouses are exchanging tax liabilities, and the government gets more money from the couple in most cases. Money paid for child support will continue to be treated as nontaxable income for the recipient, and not deductible by the parent making the payment.
The elimination of this deduction will apply to divorces that are signed on or after December 31, 2018. This means that couples who are already divorced, or whose divorces will be finalized before December 31, 2018, can continue claiming this deduction. This may cause a lot of couples who are already in the process of divorce to try and finalize negotiations faster in order to meet this deadline.
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If you are considering a divorce or in the middle of a divorce now, these new changes may affect how the divorce is finalized. In order to find out how the changes will affect your ability to receive spousal maintenance and the amount you may receive in spousal maintenance, contact the Naperville family law attorneys at the Roscich & Martel Law Firm, LLC for a consultation.