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New Tax Law Changes the Deductibility of Maintenance (Alimony)

The new tax law that will eliminate tax deductions on maintenance (alimony) as of January 1, 2019. The consensus is that this will force a reevaluation of divorces that involve maintenance.

The Ability to Reduce Maintenance Payments

Divorce lawyers have expressed concern that the divorcee who earns more money will have more leveraging power to argue lower maintenance payments with the new law. While the current tax plan enables the paying spouse to deduct maintenance from taxes, the new law will remove this deduction. With the old plan, high-earning spouses who are responsible for making spousal maintenance payments can deduct those payments from their taxable income each year, often resulting in significant tax savings. However, this will only apply to maintenance payments entered after January 1, 2019. All other maintenance orders will be grandfathered under the old tax law.

Other Benefits Still in Place

Although the new law will remove tax benefits that spouses who pay maintenance have been able to experience in the past and may make it more challenging for divorces to result in an outcome that’s helpful for both parties, there are still a few financial benefits that divorced spouses can continue to experience. Following a divorce, the spouse receiving spousal maintenance will not be required to report the payments as taxable income under the new plan. Additionally, an individual will still be able to receive spousal Social Security benefits that are based on the other divorcee’s earnings. However, the claimant needs to be unmarried at the time of the claim and the couple needs to have been married for at least ten years to be eligible.

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