Advertisement

Is tax reform the final straw for alimony?

From Reuters - November 10, 2017

(This version of the Nov 9 story removes certified financial planner from Armstrongs credentials in the 17th paragraph. He is not a registered CFP.)

By Beth Pinsker

NEW YORK(Reuters) - As soon as the House of Representatives proposed tax reform bill had hit the news, divorce lawyer Malcolm Taubs phone started to buzz.

The tax deduction for alimony was on the chopping block, eliminating the break for the spouse who pays alimony, and the tax hit for the one who receives it.

Because it is impossible to know if the provision will make it all the way through the process, or when it will be implemented, Taub said he was going to try to rush through his pending cases before the end of the year to be safe.

This deduction is a major, major factor in negotiating a settlement, and in terms of what a judge will give. This will dramatically change the landscape, said Taub.

While alimony is getting statistically rarer, Taub said it still figures into most of the divorces he works on in his New York-based practice. Many of his cases involve long-term marriages and high-earning couples where one spouse - typically the wife - stayed at home to raise children.

Some 12 million tax returns claimed a deduction for paying alimony in 2015, according to IRS statistics.

One problem the House proposal seeks to solve is that the number of alimony recipients who claim it as income is far lower - 10 million. The dollar amounts reported do not match either.

But experts said it was not clear that the House tax reform proposal would generate more revenue. It could, instead, make alimony more rare, and lower the amounts paid.

Payers will be less likely to agree to pay alimony because they will not get the tax break that they had previously received and judges will take the tax consequences into consideration as well, and I believe will order less alimony, said Mary Kay Kisthardt, a professor of matrimonial law at the University of Missouri-Kansas City School of Law.

MATH DIVISIONS

In one of Chris Chens pending cases as a Certified Divorce Financial Analyst in Massachusetts, the husband is negotiating to pay $60,000 a year to his ex-wife. He would currently be able to deduct that amount from his taxable income, making his true cost only $40,000.

Advertisement

Continue reading at Reuters »