People in New Jersey who are planning to divorce may be concerned about the tax implications of ending a marriage. The Tax Cuts and Jobs Act passed Congress and was signed into law in December 2017, but one of its most wide-ranging effects on divorce will go into effect with the new year in 2019. This aspect of the law changes the way that alimony is treated under the tax code, reversing the treatment of spousal support payments for the past 80 years.
Divorces that are finalized before the end of 2018 will not be affected by the change; people will continue to pay taxes as they always have. Because of this, many people — especially wealthy couples with lots of assets — have been hurrying to finalize their divorces before the end of 2018. Others are working with their lawyers to develop strategies to offset the impact of the tax reform. Historically and at present, the payor of spousal support can deduct the amount paid from his or her yearly taxes. Instead, the recipient will have to pay taxes on the income, usually as part of his or her lower tax bracket.
The old way provided benefits to both parties in the form of a significant tax deduction to the payor and increased payments to the recipient. Under the new law, however, the paying spouse will no longer be allowed to claim a tax deduction for spousal support, and the recipient won’t be taxed on the income.
While this may seem a benefit for the recipient, it could lead to lower spousal support payments. People who are concerned about this law and other tax issues surrounding divorce can consult with a family law attorney. A lawyer could advocate for a fair settlement on property division, spousal support and other divorce issues.