New changes to tax deductions with the Tax Cuts and Job Act are set to begin on Jan. 1, 2019. All divorce agreements executed by Dec. 31, 2018 will reap the benefits of tax deductions on alimony, but those agreements settled after Jan. 1, 2019 will lose out. Recipients of alimony in Maryland and other states will begin to receive payments tax-free.
Under the new law, tax deductions for alimony or maintenance paid by the higher-earning spouse will be eliminated. For some, that can mean 15-20 years of financial support without any tax relief. Many states have set limits on the time alimony is paid, and lifetime payments may be a thing of the past, even for those who never remarry. In some states, permanent alimony can end when the payer reaches the federal retirement age of 67.
Surveys released recently say divorce may be even more difficult to negotiate than in years past. Because of tax write-offs, higher-earning spouses could be more generous with divorce settlements. Alimony recipients could also receive less because of the changes. The new tax laws may make it harder to negotiate fair settlements, and that could impact child support, which is often factored into payments along with alimony.
By waiting to file for divorce, one could pay years of support without the much-needed tax break. In Maryland, experienced attorneys can be creative in structuring divorce agreements that will benefit their clients. A lawyer who is well-versed on the new tax laws about alimony can find solutions that can minimize tax burdens.