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The most sweeping federal tax code overhaul in decades, the Tax Cuts and Jobs Act of 2017 (TCJA), was signed into law on Dec. 22, 2017. New provisions in the law affect both businesses and individuals. Many of these changes will have a direct impact on the practice of family law, specifically in the area of divorce. Generally, the provisions in the TCJA took effect on Jan. 1, 2018, but the most significant change in the law with respect to divorcing parties, however, has not yet taken effect. This dramatic change will apply to situations where alimony/spousal maintenance is paid pursuant to divorce or separation agreements executed after Dec. 31, 2018. Thus, it is critical that parties contemplating divorce, family law practitioners counseling them, and mediators assisting them understand the changing law and can intelligently weigh the risks and benefits of negotiating and filing for divorce in 2018, while the deductibility and taxability of alimony remains in effect. Likewise, while the change in the alimony deduction won’t affect existing alimony orders, other changes in the TCJA may render previously negotiated divorce settlements and pre-nuptial agreements inequitable or no longer reflective of the parties’ intentions. It may be advantageous to make modifications to these prior agreements in 2018, while the alimony deduction remains available, and in light of the TCJA changes.

Alimony Provisions

In instances where there is a sufficient disparity in the income of divorcing spouses, alimony/spousal maintenance may be a part of a negotiated settlement or ordered by a court. Previously, Section 215 of the tax code allowed alimony payments to be deductible by the payor-spouse. Section 11051 of the TCJA, entitled “Repeal of Deduction for Alimony Payments,” eliminates Section 215. Under the TCJA, alimony payments are no longer deductible by the payor-spouse and are not included in income to the recipient-spouse. Such payments have been removed from the definition of gross income found in Section 61 of the tax code. Income used for alimony/spousal maintenance will be taxed at the (higher) rate of the payor-spouse and not the previous (lower) rate of the recipient-spouse. Alimony payments will be treated the same as child support and will not be deductible by the payor nor taxable to the payee.

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