Couples divorcing this year in New York may be surprised to learn that the new tax laws affect divorce and spousal support. According to CNBC, the changes reverse tax laws put in place almost 80 years ago that made it easier for ex-spouses to make and receive alimony payments. In the past, the spouse receiving alimony paid taxes on the amount received, while the paying spouse took a tax cut. The new laws allow the receiving party to exclude it from their taxable income, while the payer must now pay taxes.
At a first glance, this may seem like a much better opportunity for people who were not the breadwinners in the marriage to receive non-taxable income. However, the fact that the former breadwinners have to include alimony payments in their taxable income may make it more of a financial burden. This may lead to difficulties securing alimony payments going forward. Child support payments may also be affected as these are often calculated alongside spousal support payments.
CNBC points out that women are especially at risk of running into financial problems without spousal support for the following reasons:
- Women are usually out of the workforce for longer periods of time due to marriage and motherhood.
- The gender pay gap results in women typically making less money than men.
- Women are 80% more likely to be in poverty by age 65 than men.
Forbes notes that spousal support agreements are not permanent, so couples may make changes later down the road. This may provide room for tweaking the plan later on, but may also lead to potential disruptions. As a result, many couples agree to non-modifiable spousal support. Thus, to reduce the financial burden of spousal support, many lower-earning spouses may either have to make do with lower payments or accept spousal support with an abrupt end date.