Divorce strategies will evolve to meet new tax rules on alimony

Missouri and all other states will contend with a new federal tax law, the Tax Cuts and Jobs Act, that has many of its provisions becoming effective on Jan. 1, 2019. One change that has not been generally welcomed by matrimonial lawyers is the provision that takes away the alimony deduction from those who pay that kind of post-divorce spousal support. The law will also relieve alimony recipients from owing federal tax on this incoming monetary support.

Surveys reveal that most matrimonial lawyers predict that settlements will become much tougher to negotiate and that divorces will become more expensive. It is expected that wealthier spouses will refuse to pay alimony or will drastically reduce the amount that would have been paid with the benefit of the deduction. One important factor for those contemplating a divorce is that a settlement agreement signed on or before Dec. 31, 2018 will “grandfather” in the old tax rules going forward for a couple.

With that in mind, some observers have predicted a rush on divorces by the end of the year. That point is rapidly approaching and whether there will be such a rush to divorce remains to be seen. The deduction has been widely popular as a settlement tool in facilitating divorce settlements for the past 75 years. A wealthier spouse will now have less incentive to pay alimony as part of a negotiated agreement.

One possible result will be longer, more contentious divorces in which issues of long-term support will have to be decided in a more adversarial context with the family law judge making the final decision. Some experts recommend that spouses should engage in a greater degree of financial transparency with each other so that a fair amount can be negotiated while taking into account the new tax law hardships. The only certainty is that divorce attorneys in Missouri and elsewhere will continue to dedicate themselves to getting the best settlement for their clients that they can reasonably obtain under the circumstances.

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