We don’t know for certain what the final compromise tax bill will provide. But indications are that the tax deduction for alimony payments made to a former spouse may go away. This can be part of the way lower taxes can be allowed and not add (quite) so much to the federal deficit.
Until this is clarified, for couples divorcing before the end of the year, the paying spouse needs to assess whether losing this deduction makes an alimony payment part of a reasonable settlement. It might be more economical to give the other spouse a larger share outright of a 401K or sale of other assets, rather than agree to alimony payments that get no tax deduction.
There is also the factor to consider that a split of financial assets between spouses generally has no tax consequences. And once finalized, there is no lingering uncertainty as to whether the paying spouse will have the anticipated income in the future to make the payments without undue hardship. The splitting up of assets and debts are done generally at entry of the decree, and there is no monthly check to factor into the budget.
Each case is unique and each spouse should consult with their own attorney and accountant as to financial outcomes.
Submitted by Attorney Sharon L. Michaels