Berman & Asbel, LLP

Update on Tax Reform and Alimony

In a blog post we wrote in November 2017, we discussed the potential impact that proposed reforms in the Tax Cuts and Jobs Act of 2017 could have on alimony payments.

The act was signed into law last month and includes new rules for alimony, which will go into effect in 2019. More specifically, the new tax law eliminates the deductions for alimony payments and no longer requires alimony recipients to report payments as taxable income.

This may be one small element of the tax overhaul, but it can have a significant effect on divorcing spouses in Pennsylvania in at least a few ways.

  • Dragging out the divorce: Now that paying spouses will not be able to deduct their payments, there is little incentive to agree to higher amounts. As this WTOP article on the tax law notes, this could lead to more difficulties negotiating alimony outside of court.
  • Adding to the confusion: Most people going through a divorce are going through it for the first time and may not be familiar with Pennsylvania family laws, their legal options and ramifications of a settlement.
  • Exacerbating financial strain: Divorce exacts an economic toll on both parties, and the new tax law could make things more difficult if it is no longer possible to shift taxes from the higher bracket ex-spouse to the lower bracket ex-spouse to reduce overall tax.

Even though these changes will not go into effect until 2019, there is good reason for residents of Pennsylvanian to be aware of them now. Perhaps you are thinking about getting a divorce, knowing this law will be in effect next year could help you plan ahead. Alternatively, if you are getting married in the coming months, you might want to consider establishing alimony rules in a prenuptial agreement to avoid difficult negotiations in the future. Call on Berman & Asbel, LLP to help you with your legal needs.

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