The Tax Cuts and Jobs Act of 2017 has been passed, and it will have a huge effect on divorce.
The bill (loosely called the GOP Tax Bill, Republican Tax Bill, or Trump Tax Bill) is massive; it has been more than 30 years (since 1986) that there have been such significant revisions to the tax code. The cuts are expensive, according to Yahoo Finance senior writer Ethan Wolff-Mann. Analysts expect it to ultimately be a $1.5 trillion expense, due to insufficient taxation to cover the cuts. As revenue to make up for some of the cuts within the bill (to avoid adding to the national deficit), the GOP authors changed the person who gets to deduct money paid through alimony. Before the bill, the spouse who was paying alimony could deduct taxes from that amount, while the receiving party was taxed at 15%. Now, it is switched: the payer gets taxed, and the recipient can write off the amount.
This new law is controversial. Some attorneys simply see it as a change in the playing field that requires a reevaluation of divorce cases. Others have directly criticized it.
Divorces could soon get messier
The president of the American Academy of Matrimonial Lawyers, Madeline Marzano-Lesnevich, said that legal clients who will be receiving alimony will attempt to rush through divorces at the end of the year. The deadline for newly divorced spouses to enter into agreements that include tax-deductible alimony is December 31, 2018. Cases could get contentious or “messy” as parties will not agree on whether the divorce should go through in late 2018 or early 2019.
The author of the book Divorce: Protect Yourself, Your Kids, and Your Future, Atlanta-based attorney Randy Kessler, explained that affluent clients are willing to agree to substantial alimony when it is tax-deductible. “The deduction, as it stands, is a great motivator to encourage the higher wage earner to agree to help support the spouse with less income,” the author added.
Two-thirds forecast end of year as stormy
The American Academy of Matrimonial Lawyers (Marzano-Lesnevich’s organization) conducted a survey to find out if attorneys thought that the new law would make divorces nastier. Nearly two-thirds of lawyers said that they thought it would.
Bloomberg, in a February 2018 piece for Fortune, noted that divorces would become more heated since there would be less of a tax incentive to be generous.
Divorce before things get unfriendly
If you have decided you want a divorce but have not yet moved forward with a lawyer, now is the time, as far ahead as possible of the contention that will characterize the end of the year.
At Fulmer & Fulmer, our attorney team offers extensive divorce and family law experience. In fact, we have a “Superb” rating of 9.2 with Avvo, the basis for our 2017 Clients’ Choice Award for family law. For more information, please review our divorce law commitment as well as some frequently asked questions about divorce.