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Tax law flips alimony liability on its head

| Apr 15, 2018 | Property Division |

Divorced or would-be divorced couples in Connecticut may want to take note about a change that is looming regarding how spousal support payments will be taxed once the Tax Cuts and Jobs Act goes into full effect on January 1, 2019. 

As explained by the Internal Revenue Service, the current law assigns tax liability to the spouse who receives alimony payments. In addition, the IRS allows the spouse who must make spousal support payments the ability to deduct these payments from their federal tax returns. This arrangement has been integral into the development of many divorce settlements as taxation is one element considered when both sides in a divorce evaluate their full agreements that include not only alimony but property division and potentially even child support.

MarketWatch reports that this will all change next year. For any new settlement entered into or any existing agreement that is modified after the start of 2019, the tax liability for alimony payments will rest with the person who makes the payments. This could well be a big game changer in the negotiations of many divorce cases.

Spouses who are likely to be the ones paying alimony may understandably be less willing to agree to the same amounts that they had paid before. Spouses who would receive alimony may actually end up receiving less than they did before leaving them to find other ways to make ends meet. This move is an attempt by the government to generate additional tax revenue because paying spouses tend to be in higher tax brackets than do their recipient counterparts.