The new tax bill that was recently signed into law is bound to create some shifts in society as new policies are carried out. One such policy is a change in alimony, making the payments now tax-neutral. Couples undergoing the divorce process in Virginia may find themselves tempted to finish before 2019, when the new laws will go into effect.
Previously, alimony was tax-deductible for the person paying it, typically the higher-earning spouse, and a person in a higher tax bracket. Being able to deduct payments means less of a financial impact at tax time and a greater ability to pay larger sums to the former spouse. The person who received the payment was required to claim the payments as income. The new policy, set to begin in 2019, will repeal the tax status of the payments.
Under new law, the payments are neither deductible, nor will they need to be claimed as income, much like how child support payments are currently treated. The change could complicate how the alimony payments are calculated, as some locations decide the payment amount based on a formula that took tax impacts into consideration. These policies will likely need to be rewritten.
The divorce process can already be a tense time for individuals, and the new law introduces some new unknowns. In Virginia, a person facing divorce may desire some help with finding the best scenario for ending a marriage. Many people choose to hire an experienced family law attorney who can guide them through the process, keeping in mind any changes in current law that could affect the finances.
Source: Reuters, "Your Money: Get ready for a flood of difficult divorces in 2018", Beth Pinsker, Dec. 21, 2017