For married couples thinking about divorce, the end of 2018 means more than just finding someone new to kiss at midnight. Under the GOP’s tax overhaul, divorce agreements finalized after January 1, 2019 will no longer be eligible for a 75-year old tax deduction for alimony payments. But those settled before the new year will be grandfathered in under the old rules, potentially saving tens — if not hundreds — of thousand dollars over the life of a divorce settlement.
According to Jacqueline Newman, a partner at the matrimonial law firm Berkman, Bottger, Newman & Rodd, LLP in Manhattan, the holidays are usually a sleepy time for matrimonial attorneys. “You know I always say you never want to serve someone a summons in their stocking,” But with so much on the line, some lawyers are scrambling — and maybe even canceling their vacation — to get these deals inked before the ball drops.
The new tax laws might also affect the way divorce is negotiated in the future. Under the old rules, The deduction meant that alimony would cost less to the person paying for it than it was worth to the person receiving it. That incentivized more generous alimony agreements.
The new rule flips things around. Now, people who get alimony won’t have to pay taxes on it, but alimony payers won’t be able to deduct the payments from their income. In other words, paying alimony just got more expensive. According to Congressional estimates, the IRS will reap 6.9 billion dollars in new tax revenue over the next ten years from eliminating the deduction. But the people paying those taxes aren’t necessarily who you think.
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