Better get your divorce or legal separation finalized before the end of 2018. At least that's what matrimonial law and financial experts are saying now that the Tax Cuts and Jobs Act (TCJA) has been signed into law.
For those who haven't read the TCJA -- which is likely a majority of Americans -- the bill gets rid of a 75-year-old provision that allowed divorced spouses to claim alimony payments as a deduction on their taxes. In exchange, alimony recipients were required to claim and pay income tax on these payments.
After 2018, however, all of this will change.
How will the new tax law work?
As one USA Today article explains, any divorce or legal separation finalized after December 31, 2018 will be affected by the TCJA, which no longer requires alimony recipients to claim payments for income tax purposes. Sadly, the provision also scraps the alimony deduction for spouses required to make alimony payments.
How big of a deal is this?
For some divorcees, this change could be major.
As the USA Today article explains, some paying spouses could see the loss of thousands of dollars in savings each year. On the other hand, however, recipient spouses won't have to pay in as much on income taxes, which could help them save thousands each year.
What will this mean for divorcing couples?
Matrimonial law experts fear the change to the tax law could create more problems than lawmakers realize.
For starters, with the promise of a tax deduction off the table, lawyers and experts worry high-income spouses will be less likely to negotiate and accept alimony requests from their lower-income spouse as part of a divorce settlement. This could turn divorce settlement negotiations into far more contentious discussions than they already are.
Additionally, we could see a flood of divorce filings in the upcoming months as divorcing couples rush to get grand-fathered into the current law before it changes in 2019. This could strain courts across the nation, including here in California, making wait times and finalizations on divorces an uncertainty for numerous Americans.