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Divorce negotiations could be affected by alimony tax changes

At the end of a marriage, the separating couple will have to decide on several final arrangements. Divorce negotiations in New York typically revolve around asset division, child custody, child support and alimony. One new change in the tax code has created a stir because it may have effects on how divorces are settled from now on. 

Previously, when a divorced couple reached an alimony agreement, the person who paid the alimony was able to deduct those funds from his or her income tax. The person who received the payment would claim the funds as income. This resulted in a situation where the person paying felt like they were able to offer a more generous sum because the tax break reduced their tax burden. The other person paid tax, typically at a lower bracket, and was able to keep more of the funds. 

With the new tax plan, payers will need to claim the income as taxable, and payees do not have to claim the sum. In this scenario, a person who pays alimony may be less likely to offer as much, since they will owe more at the end of the year. While it may appear to be a windfall for recipients, the change could make negotiations more tense since the payer could argue that he or she has less to give. 

Mediators and attorneys are still grappling with the effects of the coming changes, and some have expressed opinions that the new change may increase the financial strain of divorce. People who are currently in divorce negotiations in New York have until the end of the year to settle before the new law takes effect. For many, the assistance of a family law attorney can help them decide on an appropriate approach to take. 

Source: CNBC, "Loss of alimony tax break in GOP bill may add to the financial pain of divorce", Annie Nova, Feb. 4, 2018

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