Divorcees around the country, including those in Utah, may find untying the knot a little costlier, in the long run, thanks to changes in the taxation of alimony that went into effect January 1, 2019. The current provision that allows for payers to deduct the cost of paying alimony from their personal income is 75 years old—and proponents of the new law say it is outdated.
Alimony is especially important to recent divorcees who may be struggling to get back on their feet in the aftermath of a failed marriage. The new law gives these payees a bit of a break, however, since alimony is no longer taxable under federal laws. If you are considering divorce or if you have been served divorce papers and are wondering how this new law affects you, contact Emy A. Cordano, Attorney at Law, and our Salt Lake City divorce attorney right away to discuss your case.
It is important to note that this new provision only affects divorce and separation agreements entered into after December 31, 2018. The law is part of the Trump administration’s Tax Cuts and Jobs Act signed into law in 2018.
As the American Academy of Matrimonial Lawyers Madeline Marzano-Lesvenich points out, this new tax regulation will change the way that divorce cases are settled. Couples should prepare themselves. The alimony tax deduction was once a powerful negotiating tool, and now that tool is more of a stumbling block for couples trying to work out the issues that so often hold up the process of marriage dissolution—and it may serve to make divorces more bitter. Proponents of the change say that it will result in spouses that make more money being less willing to agree to higher dollar amounts for their former spouses.
The most recent figures from the Internal Revenue Service from 2015 indicate that Americans filing form 1040 claimed a total of $12.3 billion in deductions for alimony that year.
Under the old law, if Spouse A makes $300,000 per year and pays Spouse B $40,000 per year in alimony, then Spouse A would only be taxed on $260,000 in income. Spouse B would be taxed on $40,000 plus whatever other income he/she has. Under the new requirements, Spouse A is taxed for all of his/her income, including any income paid to Spouse B, but Spouse B is only taxed for his/her income, not alimony.
In Utah, the courts take a number of factors into consideration when determining whether or not to award alimony, including the income of both spouses, the length of the marriage, and even the reasons for the breakup of the marriage. As a general rule, alimony cannot be ordered for a period of time that exceeds the length of the marriage.