New Tax Law Changes in Tax Bill Favor Husbands during Divorce Starting January 1, 2019.
Women who have been on the fence about getting a divorce may want to set the paperwork in motion now. With a new proposed tax bill in place, women who were set to receive alimony payments from their spouses may soon find themselves at a disadvantage. The biggest consideration during the divorce process should be how to set yourself up for the brightest possible financial future, but this tax bill may eliminate some of your financial security.
If you are not sure about the implications that the upcoming shift could have on your divorce, you will want to keep reading. Now is the time to assemble a top-notch divorce team, and receive everything you are entitled to under the current law structure.
How does the tax bill change the alimony rule?
Over the past 75 years, the alimony tax rule has gone untouched, so it has provided significant benefit to those who receive payments for spousal support. The Revenue Tax Act of 1942 deemed that some alimony payments would be deductions for the paying spouse, and they would be sources of income for the receiving spouse. This paradigm was designed to alleviate the financial strain that affects divorced couples who would have to balance the expenses of two separate households.
The new tax bill threatens to overturn that 75-year-old standard. But realistically, what does that mean for couples who are in the midst of a divorce?
At the end of 2018, alimony payments will no longer be considered tax deductions for the paying spouse, and the receiving spouse will no longer have to pay taxes on the income. This change is extremely detrimental to both parties involved in a divorce, and it could end up costing you thousands of dollars.
Ordinarily, the paying spouse would be able to claim the alimony they pay as a deduction on their federal income taxes. This change has the potential to lower their tax bracket and makes the arrangement much more financially favorable for them. Considering that the higher-earning spouse tends to be the one responsible for paying alimony, it is a financially savvy way to reduce their overall tax bill each year.
On the other hand, the receiving spouse should list payments as a source of income, and pay taxes on these payments. Since they are the lower-earning spouse in most cases, they are taxed at a lower rate. Therefore, according to the current alimony tax rule, there is more money to share between the two spouses.
However, the new bill will drastically reduce the amount of money that can be transferred between spouses. How will it work moving forward?
As a part of their overall income, the paying spouse will need to pay taxes on the alimony payments, instead of claiming them as a deduction. The receiving spouse will not be responsible for paying taxes on the payments, which may seem profitable for women at first glance. But upon closer inspection, it is actually the government’s way of increasing women’s tax revenue over the coming years.
Of the two spouses, the one who has a higher income is more likely to be required to make alimony payments. Regarding income tax, you probably know that higher earners are taxed at much higher rates than those with lower incomes. In other words, alimony payments are going to be taxed according to the bracket that the higher-earning spouse falls in.
For women who were set to receive alimony payments, this situation can drastically alter their expected payments. The money simply will not stretch as far under the new tax changes, so they will be more likely to receive a decreased payment.
How many women will it really impact?
It is pretty clear that this tax bill is going to alter the course of future alimony payments. But will it really have a huge impact on the country as a whole? If you take the time to examine data about the current population, you will find that more women are likely to be affected by this change than you may imagine.
When it comes to determining the number of couples who have court-ordered alimony payments, government statistics are difficult to find. Depending on the specific agency that issues the numbers, you may find conflicting information.
This information is particularly true when examining data from the Internal Revenue Service (IRS). Year after year, there are consistent discrepancies between:
* The amount of alimony claimed as income by the receiving spouse
* The deductions that have been claimed due to alimony
This government discrepancy has been a source of strife for decades.
According to the last set of data released by the IRS, $9.6 billion in alimony payments were claimed for the 2015 tax year. The data from the US Census Bureau reveals more telling information: It states that approximately 243,000 people received alimony payments last year, and that the vast majority of them (98%) are women.
In other words, the new tax rule for alimony will affect almost all of the alimony recipients. When it comes to alimony payments, men are consistently underrepresented, so women need to pay close attention to the financial repercussions of these upcoming tax changes.
Why Women Should Get Divorced before the End of 2018
Are you still unconvinced that now is the best time to file for divorce? The clock is ticking. The proposed tax reform will takes place in less than a year, and it will drastically alter the way that alimony will be handled by the IRS. If you are practical about proceeding with your split now, it could result in much more favorable terms when you receive your divorce decree.
Women who would have qualified for alimony payments are far less likely to receive the same amount in the upcoming year. Since the paying spouse is more likely to be taxed at a higher rate, there will be less money available for them after the government takes their share. Depending on your payment amount, this change could alter the tax obligations for your spouse by thousands of dollars each year.
Even a difference of a few hundred dollars each month can be substantial. Consider all of the ways you could use these extra funds in your budget as a single person. Whether you have been issued alimony on a permanent or temporary basis, you may have to scrimp and adjust your lifestyle according to your reduced income levels.
Because there will be less money to go around, divorce negotiations are likely to be approached much differently in the future. Financial strain makes everyone feel stressed about the potential implications of the future. With less money to go around, it is likely that neither spouse will be as satisfied with the end result. As a result, your negotiations or litigation could become more tense and more hostile than they currently are.
In order to protect your interests during the negotiation process, it is important to make a move before the new tax law comes into play. Your spouse may be more resistant to making alimony payments, due to the inability to receive a tax deduction at the end of the year.
Overall, it is clear that there will be less money to share between spouses during divorce proceedings in the future. This change will have the obvious outcome of making the transition from one household to two even more painful for all parties involved, including kids. With the drastic cuts made to the monthly budget, women and children will need to adjust to living a less comfortable lifestyle.
If you have been considering moving forward with a divorce, today is the right time to do it. If you feel that you are entitled to alimony payments, then start having conversations with your attorney, and get their recommendation for the next steps to take. With these changes coming your way, your entire financial future could be at stake.