GRAND RAPIDS, Mich. — A major life change can make tax time a little more complicated. Christopher Harper from Grand Valley State University joined My West Michigan with tax considerations for those filing after a divorce.

Alimony and Child Support in 2017 and 2018

  • Alimony
  • Payments are deductible for the payor.
  • The recipient must include payments in taxable income.
  • The aforementioned rules apply unless the divorce decree or separation agreement explicitly provides otherwise.
  • Child support
  • Payments are not deductible for the payor.
  • The recipient is not required to include payments in taxable income.

Alimony and Child Support in 2019 and Beyond

  • Child support
  • The same rules apply in 2019 and beyond.
  • Alimony
  • The new law eliminates a 75-year-old deduction for alimony payments.
  • Tax treatment will be similar to the rules for child support.
  • The payor will not be able to deduct payments.
  • The recipient will not be required to include payments in taxable income.
  • Prior agreements will be “grandfathered” under the old law.
  • The amendment applies to divorce or separation agreements executed after December 31, 2018.
  • Agreements executed before December 31, 2018 but modified after that date will be subject to the new law’s treatment if the modification expressly provides that the new amendments apply.
  • The House Ways and Means Committee stated the change “prevents divorced couples from reducing income tax through a specific form of payments unavailable to married couples.”
  • Apparently Congress is trying to curtail a potential tax reduction technique that could provide a tax deduction to a high-income ex-spouse (payor) who is in a high tax bracket while requiring little, if any, tax to be paid by a low-income ex-spouse (recipient) who is in a lower tax bracket.

There is Still Time to Make Changes during 2018

  • Taxpayers have eight months to execute divorce decrees or separation agreements in order to have them “grandfathered” under the old rules if desired.
  • Divorce attorneys and taxpayers should pay close attention to this window of opportunity if they want the old law’s treatment to apply to alimony and separate maintenance payments.
  • It is important to consider the relative income tax brackets and other tax considerations for each spouse to optimize the tax treatment of such payments.
  • Prevent unintended consequences by exercising caution regarding any modifications.
  • This depends on which ex-spouse is on your corner of the boxing ring.
  • A payor could end up paying more alimony AND having it be nondeductible!
  • A recipient could bargain for more alimony AND have it be tax-free!
  • Both sides should understand the implications of these rules as they craft their agreements.