Divorce? Alimony? Tax Reform Says Get Divorced Now—Don’t Wait
- executed after December 31, 2018,
- or modified after that date, if the modification specifically states that the new TCJA treatment of alimony payments now applies.
Example. Betsy is divorcing Tim, and Betsy will pay $120,000 a year in alimony. If Betsy can deduct the $120,000 in her 50 percent combined federal and state income tax bracket, her net cost is $60,000 ($120,000 x 50 percent).
To look at the alimony in another light, with no tax deduction, Betsy has to earn $240,000, then pay taxes of $120,000 in her 50 percent bracket, before she can give Tim the $120,000. Regardless of how you look at the cost of alimony, the loss of the alimony tax deduction is huge.
Note: You deal with a judge (court) to finalize the divorce. This could take some time, so don’t procrastinate, or you’ll surely miss the deadline.