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How will the new tax law affect your plans for divorce?

The end of the year will be here before you know it, and when we say goodbye to 2018, the new federal tax law goes into effect.

If you are among those who are considering divorce, will the tax overhaul influence your decision?

The overall alimony picture

Government figures abound. In 2014, there were more than 813,000 divorces in the U.S. According to Census Bureau figures, 243,000 people received alimony in 2016, 98 percent of whom were women. However, going back to 2015, the Internal Revenue Service reported that only 179,000 people were receiving alimony.

How the new tax law will work

Currently, the person who is paying alimony can claim it as a tax deduction and the person receiving the alimony must pay taxes on it. The new tax law reverses this so that the payor can no longer claim a deduction and the payee will not have to pay taxes on the amount of spousal support that he or she receives.

Another option

If you divorce before 2019, you will follow the current law, not the new law. If you cannot move that quickly relative to a divorce, your other option is a legal separation. The new rules will not affect you if you sign a separation agreement prior to 2019.

Points of view

Some legal experts are skeptical about the benefits of the coming law. The Joint Committee on Taxation estimates that the new law will generate $6.9 billion in tax revenue over the next decade. Meanwhile, the House Ways and Means Committee, which is in charge of writing tax legislation, views the new alimony tax change as a “divorce subsidy.”

The committee also feels that alimony should be managed in the same way child support payments are. Currently, the recipient does not pay taxes on these payments, nor are they tax deductible for the payor. In short, there are plenty of questions and opinions about the new tax law, but only you can decide how it would affect you in light of a divorce.

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