Board Certified Family Law Specialist Matt Arnold answers the question: “When do you get alimony?”
We have previously mentioned the possibility that the Republican tax plan currently before Congress could have some unexpected impacts. Though most news reports have focused on the tax cuts for millionaires and billionaires, there are many other smaller changes that will impact wide swaths of society. One of the underreported examples involves alimony.
As we discussed before, the plan that was under consideration by Republicans included an important change to the way that alimony would be handled for tax purposes, something that family law experts say is likely to have a negative impact on the divorce process. The plan is to repeal alimony deductions, something that has been allowed for years and proven beneficial to parties on both sides of the divorce.
Currently, alimony payments are treated as tax free events for the payer. This means a person does not pay income tax on the amount of money he or she pays to a former spouse for alimony. The recipient spouse is responsible for paying income tax on the money as it is treated like income. Given the way alimony works, this almost always means the person paying taxes on the money earns less money and thus will pay a lower tax rate than the person paying the alimony. This works out well for everyone, ensuring that more money remains within the former family unit and less money is paid for taxes.
The only party that does not benefit from the current arrangement is the federal government. Advocates for change argue that many millions of dollars are lost each year due to what critics refer to as a tax subsidy for divorce. To help pay for the massive tax cuts currently under consideration, Republicans are pushing to eliminate the alimony deduction and close up one commonly used loophole. According to government figures, some 600,000 Americans used the alimony deduction in 2015. This means the impact of the change will be felt by hundreds of thousands of families all over the country.
The impact of alimony deduction repeal will be significant. For one thing, many family law attorneys believe this will make the divorce process more difficult and more combative than before. The alimony deduction served as a kind of sweetener, the fact that the payer avoided taxes on the income paid out in alimony made it easier to reach settlements. Now that the tax benefit is gone, there will likely be more pushback from those who are asked to pay alimony.
Additionally, some wonder whether the change could impact child support. Child support calculators look at how much disposable income couples have and calculate support on that amount. By eliminating this tax break, a family could find itself with thousands less dollars in disposable income, potentially impacting the amount that non-custodial parents are expected to fork over in child support payments.
Finally, the repeal of the alimony deduction is expected to have a disproportionately negative impact on lower income families. The reason is that wealthy families already have enough money to go around. With the repeal of the alimony deduction, they will simply need to spend more money than before. For those with very limited resources, the loss of a few hundred or thousand dollars a year in taxes is a big deal. Where that money would have previously flowed into the recipient spouse’s bank account, it will now go to Uncle Sam.
If you find yourself facing a complicated family law matter, then you need the help of experienced family-law attorneys in Charlotte, North Carolina who can help guide you through the often confusing process of divorce. Please contact Arnold & Smith, PLLC today at (704) 370-2828 or find additional resources here.
The family law practice group at Arnold & Smith, PLLC includes two Board-Certified Family Law specialists and several attorneys with many years of family law experience that are committed to providing a powerful voice to individuals facing the often-tumultuous issues in this area of law. The range of issues our family law clients may be facing include pre- and post-nuptial agreements; separation agreements; post-separation support; child support (both temporary and permanent); absolute divorce; divorce from bed and board; military divorce; equitable distribution of assets; child custody (both temporary and permanent); retirement benefits and divorce; alimony and spousal support; adoption; and emancipation. Because this area of the law is usually emotionally charged and complicated, the family law attorneys at Arnold & Smith, PLLC act with the utmost dedication to ensure that each client understands his or her options, and then act to achieve the best result possible for that client’s particular situation.
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