How Federal Tax Reform May Affect Your Divorce
Divorce brings many changes to the life of each spouse, and financial adjustment is one of the most significant and long-lasting of these necessary, and often painful, transitions. Most marriages have one spouse with a notably higher income, usually leaving the other spouse reliant on him/her for providing an acceptable standard of living, as well as health insurance and childcare expenses. When the relationship ends, and the spouse with lower earnings must move to living on a lower income, he/she may quickly find his/her income is not sufficient to maintain a desired lifestyle. This serious situation of financial hardship is especially possible for spouses trying to reenter the workforce after a partial or full time absence. While child support is one source of income, as well as a property settlement that is designed to account for the income disparity between the spouses, alimony may also be necessary to bridge the time between divorce and finding new sources of sustainable and adequate income.
Commonly, alimony is temporary support privately negotiated between divorcing spouses as part of the settlement agreement, though courts can award alimony depending upon the circumstances of the marriage. The payment of alimony has a direct and substantial impact on the payor’s and recipient’s federal tax burden, but recent federal tax reform will completely change this situation, and likely complicate reaching resolution in divorce cases. An overview of the types of alimony available under Florida law, and most importantly, how the new federal tax law will influence the outcome of divorce cases, will follow below.
In all but the most exceptional cases, alimony is contemplated as temporary support with a definite end date. Thus, at some point, parties receiving this support must plan how to live without this financial assistance. Generally, alimony is paid for the first few years following divorce, and in Florida, outside of permanent alimony, three types of awards are permitted: durational, bridge-the-gap and rehabilitative. Bridge-the-gap is typically the briefest type of alimony award, and is intended to provide short-term support not to exceed two years. Rehabilitative alimony is designed to help support a divorced individual as they gain the skills and training needed to become self-supporting. Consequently, the length of time this support will last varies on the needs and objectives of the party seeking alimony, and continued receipt is partially dependent upon compliance with the rehabilitative plan. Finally, durational alimony is intended to provide a party with financial assistance for a set period of time, not to exceed the length of the marriage, and is often considered more appropriate than permanent alimony for marriages that lasted less than 17 years.
Alimony under New Tax Revisions
Currently, and for any divorce issued before December 31, 2018, alimony payments are deductible from income for the payor, and countable as income for the recipient, on the parties’ federal income tax form. This greatly reduces the overall burden this extra expense imposes on the payor, and is especially beneficial for middle income individuals paying alimony. This tax benefit provides both an incentive to more openly negotiate the payment of alimony, and may increase the amount the payor can afford to provide. Starting for divorces granted in 2019 and later, however, all deductions and income reporting requirements for alimony payments will be eliminated. This change is likely to make requests for alimony a more contentious issue, which will prolong the divorce process and produce additional stressful and costly litigation. Note that these provisions will remain in effect for divorces granted before the effective date, unless the alimony award is later modified, and the modification expressly adopts the new tax rules. Consequently, anyone considering divorce who anticipates alimony will be an issue should consult with a divorce attorney about the consequences of waiting to take action.
Get Legal Advice
Alimony is just one issue that divorcing spouses must address, and Tampa Bay’s All Family Law Group, P.A. is here to help you fully understand all the implications of ending a marriage and secure a fair and appropriate outcome. Contact the Tampa divorce attorneys and family lawyers at All Family Law Group, P.A. in Tampa Bay at 813-672-1900 for a consultation at no charge or email us.
by Lynette Silon-Laguna Google+