The recent tax reform, officially the Tax Cuts and Jobs Act of 2017 (TCJA), has made several changes to the tax code and will have a big impact on spousal support in divorces and dissolutions. Before the TCJA, the spousal support paid by one party in a divorce or dissolution was tax deductible to the payer and then reported as income to the recipient. The TCJA eliminates the tax deduction of spousal support for the payer and the recipient of spousal support will no longer have to report it as income. This has the effect of shifting the tax burden of the spousal support to the person paying it. However, this change only applies to divorce or dissolution agreements executed after December 31, 2018. For divorce or dissolution agreements finalized on or before December 31, 2018 the tax treatment of spousal support will remain unchanged, even if the support is paid and received after December 31, 2018. Essentially, it is possible to “grandfather in” the tax deductibility of spousal support so long as a divorce or dissolution is finalized by the end of 2018.
If you are considering filing for a divorce or dissolution and are worried about the impact this tax code change will have on you, please call Thomas Law Group to discuss.