“How Does the Tax Reform Act Impact Alimony/Spousal Support Payments?”

HOW DOES THE TAX REFORM ACT IMPACT ALIMONY/SPOUSAL SUPPORT PAYMENTS?

Beginning with court orders entered after 2018, alimony will no longer be deductible to the payer or taxable to the payee.  This is a significant change and will affect divorce proceedings starting in 2019.

Alimony payments generally are allowed as “above the line” deductions for the payer and are included in the income of the payee.  However, alimony payments are neither deductible by the payer nor includable in the income of the payee, if designated as such by the divorce decree or separation agreement.

The Tax Reform Act of 2017 may also have some impact on current alimony in high income situations where there is a change in tax brackets.  The following example illustrates how the change in tax brackets may impact the payer of substantial alimony: if in 2017 the payer was in the 28% bracket but will now be the 24% bracket, that modification of 4% can become a significant number in a situation where the payer is paying $10,000 a month in alimony. In that circumstance, that person’s annual tax savings may be reduced by 4% of the $120,000, or $4,800, in effect increasing the payer’s tax burden by that amount, in that year.

Given this change in the tax code, the payer of significant alimony may wish to ask the Court for a modification based on this change in circumstance. The change in tax brackets may reach the level of a “change in circumstance” that would allow the Court to consider modifying alimony currently being paid because with high income alimony payers, a change in the bracketing may reduce the advantage of being able to deduct the payments.  If you wish to explore this issue about alimony/spousal support further, please contact one of our Divorce attorneys at Damon, Ver Merris, Boyko & Witte, PLC by calling (616) 975-9951.

We are here to help – Curtis R. Witte –  January 29, 2018

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