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Alimony taxation may change divorce outcomes

On Behalf of | Nov 25, 2018 | property division | 0 comments

For many couples in Tennessee who might be struggling in their marriages, the time between Thanksgiving and New Year’s Day is often a time to put aside conversations of getting divorced. It is common to choose to table these things until after the holidays in part to avoid awkward conversations or moments at family gatherings and also to maintain some treasured family traditions for any children they may share. This holiday season might well see a notable exception to this trend as some couples might choose to hurry up and get divorced in 2018.

The reason for this potential shift is the change in how spousal support will be taxed when the 2019 year gets underway. Bloomberg recently explained that historically the person who receives alimony pays the federal income taxes on the funds. The person who pays alimony actually deducts that money from their tax return. From the government’s perspective, this may result in less tax being paid because the recipient is commonly in a lower tax bracket than the payer.

Perhaps in an effort to generate more tax revenue, the government will now make the paying spouse responsible for income taxes on alimony, not the receiving spouse. This may actually result in very different outcomes for divorce agreements. The spouse who would pay alimony may be less inclined to agree to such payments knowing that they will also have to pay the taxes on top of that.

Some couples may choose to make different agreements about how to split their marital assets or debts instead of using alimony as a way of coming to a final settlement.