How the New Tax Law Affects Divorcing CouplesIn late December, President Trump signed a $1.5 trillion tax overhaul bill into law 2017, the Tax Cuts and Jobs Act (TCJA). This bill ushers in some sweeping modifications to existing law, but two significant changes can directly affect couples going through a divorce—alimony deductions and the Child Tax Credit. Both of these issues are something divorcing couples will need to carefully consider while working out the details of their settlements.

The alimony tax deduction

Alimony, also known as spousal support, is typically part of a divorce agreement (but not guaranteed) when there is a disparity between the income of each spouse. Judges often consider alimony when one spouse earns much less than the other, knowing that two separated families simply can’t live as cheaply as one family.

Before the new tax law, ex-spouses who pay alimony were able to deduct that expense from their federal taxes. Those receiving the alimony income had to claim the alimony on their taxes as income. In 2015, an approximate 600,000 taxpayers claimed about $12 billion of alimony deductions. Under the new tax law, these deductions and taxations will be eliminated.

These changes only affect divorces carried out after December 31, 2018, meaning any existing divorce judgements are grandfathered in under the previous law. If they were taxable and deductible before, they will remain so.

What does this mean for real life families? Well, under the previous tax plan, since alimony was tax-deductible, spouses were more amenable to larger alimony payments. Now that alimony is no longer tax-deductible, spouses may fight for a lower alimony payment, as their ability to pay may now be more limited. Without a tax deduction, there’s less money for everyone. And for people with limited incomes, paying out an extra $200 to $300 a month after losing that tax break can make a big difference in quality of life.

Couples planning on marrying should also note this new law when planning pre- and post-nuptial agreements.

The child tax credit

The following changes regarding children and taxes are effective immediately. Note first, however, there are no changes to the rule that child support payments are neither tax-exempt nor deductible.

However, taxpayers can no longer deduct children (or others who qualify) as dependents. This can have an effect on divorce settlements, as divorcing couples often negotiate the right to claim children on their taxes as part of their parenting plan. However, the child tax credit is raised from $1,000 per child to $2,000 per child, and is available to those filing single or head of household with incomes up to $200,000. So there still may be value in negotiating the right to claim one or more children.

Many of these tax changes also expire, or “sunset,” in 2025, so it’s crucial to speak to a family lawyer when considering a divorce, parenting plan, or modification.

If you are looking for knowledgeable advocates, the skilled Nashville attorneys at Miller Upshaw Family Law, PLLC, are here to represent your interests through all the difficulties of divorce. We answer your questions and recommend the best next steps for you and your family. Please call 615-391-4200 or use our contact form to reserve an appointment with our dedicated legal team.