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Tax Cuts and Jobs Act – Effect on Spousal Support and Alimony

On Behalf of | Oct 4, 2019 | Divorce, Tax Law

By Dannielle M. Campbell

What we know. The Tax Cuts and Jobs Act of 2017 repealed the alimony deduction to paying spouses for any divorce or separation instrument executed after December 31, 2018.

What is the alimony deduction?  The alimony deduction allows the payor to take an income tax deduction for amounts paid to a former spouse, while the recipient former spouse includes the payment as income and pays taxes on the amount.  This often benefits both persons by lowering the overall tax liability.

Does this effect my divorce?  Those couples that are divorced or finalizing their divorce prior to the end of 2018 can claim this alimony deduction under the former law.  Those couples who divorce in 2019 or later will no longer be able to claim the alimony deduction.

What if I have a Pre-marital Agreement or a Post-marital Agreement?  Unfortunately, the Tax Cuts and Jobs Act of 2017 fails to address how the repeal of the alimony tax deduction will affect prenups and postnups if those agreements include prospective  provisions for alimony payments.  Presumably, a prenup or postnup created under the former law may not be prevail because any future divorce would take place after 2018.

What if I have a Trust that pays support like alimony?  Similarly, the Tax Cuts and Jobs Act of 2017 doesn’t address Trust Payments pursuant to a divorce.  Under the former law, income from a trust established as part of a divorce decree or separation agreement was properly taxable to the beneficiary, rather than the grantor of the trust.  If couples with this type of trust in place do not divorce until 2019 or later, the trust may be treated under the general grantor trust rules, meaning the grantor would be the taxpayer.

 If you have questions about your divorce or if the Tax Cuts and Jobs Act 2017 affects you or your divorce, please call us at 415-527-0788.