When couples separate, there is a lot of emotion throughout the process. In addition, there are numerous logistical decisions that must be made, as couples often become more intertwined than they realize. Potential living accommodations, possible selling of shared property, the care of children and separation of bank accounts are just a few of the decisions that have to be made. Pennsylvania couples who anticipate a high asset divorce in the next year may be interested in understanding how the new tax code may affect their alimony negotiations.

Many couples who share a significant amount of wealth and assets likely will have serious negotiations about alimony. For the past 75 years, divorce attorneys, mediators and accountants have been able to advise spouses who are paying alimony that a tax deduction could help in their negotiations. Paying spouses were given a tax deduction on the amount of alimony paid, often allowing the payor to negotiate a higher alimony settlement to the receiving spouse and sometimes preventing the need to proceed to court for mediation.

In contrast, the spouse receiving alimony has been required to pay taxes on any alimony received, but the tax code is putting an end to that requirement. Receiving spouses will no longer be required to pay taxes on alimony, but paying spouses will also not receive a tax deduction. The new tax code will take effect in 2019, and experts are unsure how it may affect future divorce negotiations.

It is understandable that additional uncertainty may be present in future high asset divorce negotiations, along with all other pending decisions. Pennsylvania family law attorneys will be informed and educated on the implications of the new tax code and will be able to advise clients accordingly. Additionally, attorneys remain a resource in the years following a divorce, if needed, or if further concerns arise.

Source: CNBC, “Alimony tax changes may scorch divorcing couples“, Annie Nova, Feb. 16, 2018