We’ve all heard about the recent tax changes. And while there has been much debate on how it will help everyone versus it helps only the very rich, something that’s received little attention are the changes regarding spousal support (known in some states as “alimony”). And these changes may have a HUGE impact on your divorce. And whether you should start it ASAP or wait.
Currently spousal support is deductible for the paying spouse and considered taxable income to the one receiving it. For many, said support being deductible encouraged many to pay it and helped make the settling of the divorce go smoother. However, these tax ramifications will no longer be in effect for divorces final after December 31, 2018.
So timing is important. If you will be paying spousal support, you likely will want your divorce to be final this year. Which likely means starting it no later than this summer. As even the most amicable take at least 60 days (the required waiting period in Arizona). And those that might not be 100% amicable at first, may then take a few months to negotiate things. So if you start in the summer, you may not reach an agreement until fall. And then once an agreement is reached and everyone signs, the papers must then go to the court. Under normal circumstances it can take anywhere from a few days to a few weeks for the court to sign. And towards the end of the year it generally takes a bit longer. And this year, due to these new tax laws, it may take even more time.
In researching this matter and speaking with a few attorneys, the consensus seems that final papers should be submitted to the court no later than November 1 to make sure the divorce is final this year. So in allowing for the above time, especially if you might be paying spousal support, starting your divorce this summer may be wise.
Of course, if you are the one to receive the support, you may want to delay things. However, this may not necessarily matter as much. Generally the person receiving spousal support has a fairly low income to start with, and thus the spousal support may not have a big an impact, ie: the taxes under the current law that would be owed by the receiver may be quite minimal (as their lower tax bracket is lower). Versus the tax deduction allowed to the paying person may be quite a bit (as their income puts them in a much higher tax bracket to start with).
Note: This is only general information and you should discuss any potential divorce settlement with a family law attorney and then the tax ramifications of any settlement with an accountant.
Personal note: Many say the new tax laws are geared to help only the very wealthy. I’m not sure, as I honestly don’t understand all of the new laws. But at least as in regards to this new law, as generally the very wealthy don’t pay so much in spousal support and more so in property settlement (as the very wealthy have more assets to divide), it seems it will have little impact on them. But my research does lead me to believe that it WILL hurt the middle class/barely upper class. As there are many who make more than their spouse and thus might owe maintenance but are in no way considered “wealthy” by most. Not to mention we lose a very good bargaining tool for an amicable divorce. Again, this is my opinion and only time will tell.