The Tax Cuts and Jobs Act of 2017 will affect divorcing couples with maintenance or alimony concerns in a big way.
As of January 1, 2019, if you are ordered to pay maintenance or what we used to call alimony, you can no longer deduct those payments on your taxes. If you want to deduct those payments on your taxes, you will need to finalize your divorce in 2018.
Beginning January 2019, if you are receiving maintenance, you won’t have to declare it as income but your ex will no longer be able to deduct it. This is exactly how we treat child support.
There are other changes in the new Tax Law that will affect you in your divorce.
1. You will no longer be able to claim a personal exemption. That was reduced to zero
2. Deductions for state and local taxes above $10,000.00 are gone.
3. Unless you or your spouse are in the military, you can no longer deduct moving expenses when you move out of the marital home.
There could be various consequences to these changes. It might become more difficult to keep the marital home. Why?
If your spouse is no longer reporting mainenance as additional income, he or she may have difficulty getting a mortgage. It depends on the mortgage company and their guidelines.
One bright side, is this may lead to more lump sum settlements instead of alimony. It might make more sense in some cases to simply agree on a lump sum if possible in lieu of perodic payments.
Here in Illinois, we have a maintenance formula and the duration varies increasing the longer you are married but with the impact of the new tax laws, couples may want to consider using the formula just as a guideline and agreeing on a lump sum.
These are complicated matters and it is best to consult and use an an attorney for the best results for both of you.