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Taxes and the changing face of divorce

On Behalf of | Nov 11, 2018 | Divorce |

For many decades now, countless divorces in Pennsylvania have been finalized in which one spouse was ordered to pay alimony to the other spouse. These payments are often regarded as a  support to the person who has a lower income and designed to allow them time to transition to being able to fully provide for themselves financially after the divorce. 

The person who pays alimony has historically been able to get a deduction on their federal income tax return in exchange for making these payments. That deduction has often helped ease the sting of paying the alimony and facilitated agreements during divorce negotiations. Then, the person who received regular alimony payments was required to report them as income on their tax return and pay federal income taxes on the funds. 

Bloomberg explains that effective January 1, 2019, the current system of taxation as it relates to spousal support will change, dramatically changing how divorce settlements are negotiated and achieved. The change is part of the new tax law and will put the onus for paying income tax on alimony squarely on the shoulders of the person who pays it, not the person who receives it. This will no doubt end up feeling like a double whammy to potential alimony payers as they not only pay a former spouse but also the Internal Revenue Service.

For couples who are able, completing a divorce in 2018 may well be advantageous. In fact, many people that there could be a rush to do just this before the end of the year.