How a new tax law could lead to an increase in divorce

The elimination of the alimony tax deduction could have a big impact on divorces beyond alimony itself.

The recently passed tax reform bill, the Tax Cuts and Jobs Act, would at first glance seem to have little to do with divorce or family law. However, as PBS Newshour reports, many analysts are predicting that a little-known provision in the new tax law could provide many unhappy married couples with motivation to get divorced sooner rather than later. That's because as of January 1, 2019, those filing for divorce or separation will no longer be able to deduct their alimony payments from their federal taxes. The change could have a broad impact on family law, including on prenuptial agreements and the amicability of divorce negotiations.

Eliminating the alimony deduction

For the past 70 years, anybody paying alimony has been able to deduct that expense on their federal taxes. The deduction is meant to reflect the belief that those paying alimony should not be forced to pay income tax on money that they don't actually receive. Recipients of alimony, on the other hand, do pay income taxes on those payments.

However, after December 31, 2018, that will all change. The alimony tax deduction will be eliminated, while recipients will no longer have to pay taxes on alimony payments. The changes will only apply to divorces or separations that begin prior to January 1, 2019.

Effects will be felt throughout family law

The change will have an especially big effect on how alimony itself is determined and will likely lead to their being less money available for alimony payments. As Politico notes, those who pay alimony tend to be in a higher tax bracket than those who receive it. As a result, the deduction received for alimony is often much larger than the taxes paid on it. What that means is that people paying for alimony will lose the flexibility they currently have in divorce negotiations knowing that they can get back up to 40 percent of what they pay.

The fact that high-earning spouses will be less likely to agree to generous alimony payments means that divorce negotiations themselves are likely to become less amicable. With more of the alimony money going to taxes rather than to either spouse, there will simply be less money to negotiate over, thus increasing the chances of disputes arising. Furthermore, the fact that many existing prenuptial agreements were drafted under the assumption that alimony would remain tax deductible, that means that arguments are also likely to arise over whether those agreements should be renegotiated or enforced as is.

Getting help with a divorce

Divorce is an incredibly difficult process and most people can't be expected to understand how when they file for divorce could affect their ultimate financial and legal situation. That's why anyone considering a divorce should talk immediately to a family law attorney. An experienced attorney can advise clients about what their options are and how to go about pursuing a strategy that better protects their best interests.