How Will the New Tax Law Affect Alimony in High Asset Divorces?


Under the new tax law which went into effect on January 1st, alimony payments may never be the same in the U.S.

Prior to 2019, a spouse making alimony payments under 26 U.S. Code § 71 was able to deduct those payments when filing their taxes, whereas the spouse receiving those payments would have to include alimony payments under taxable income. Under the Tax Cuts and Jobs Act, spouses making alimony payments are no longer able to claim write-off payments on their taxes, while spouses receiving alimony will no longer have to claim those payments.

Also known as spousal support, alimony is awarded in divorce proceedings when one spouse has significantly more assets or earning capacity than the other. The spouse with more assets and earning capacity will make alimony payments to the other spouse for a period of time, which may range from temporarily to indefinitely. In many cases, alimony is awarded to allow one spouse to seen an education, or otherwise increase their earning potential. In other cases, such as when a couple has been married for a particularly long time, alimony may be awarded to help one spouse maintain the lifestyle they have become accustomed to.

Couples entering into a high net worth divorces in 2019 and beyond will likely be greatly affected by the recent changes in U.S. alimony rules. Under the new tax law, spouses with higher incomes now have less incentive to negotiate on alimony payments. The more one spouse makes, the more they are likely to pay in alimony. Therefore, the inability to deduct spousal support on taxes means that the overall cost of alimony is likely to go up. For spouses with a high net worth, the lack of a tax subsidy could lead to alimony payments becoming a major part of their yearly budget.

Because they will no longer have to pay taxes on alimony, you might think that spouses receiving payments in a high net worth divorce would be in a great financial position to plan for their future. Yet as already mentioned above, the lack of a tax subsidy will surely disincentivize many spouses with a high net worth from coming to the negotiating table. And although they will no longer have to pay taxes on alimony, spouses receiving support will also no longer be able to apply payments to retirement plans, like IRAs.  

The overall effect of the new law is that the tax-free money available to both spouses will be significantly reduced. As one spouse is likely to fight harder to prevent alimony payments, the other will likely have to fight harder to receive them. Child support payments are also non-deductible, which means the new tax law may draw out negotiations in this area as well.

While the alimony provision in the new tax law was designed with the intention of making spousal support settlements easier on both parties, it is likely to have the opposite effect on couples entering into a high net worth divorce, where there is more to lose and more to gain. This is why it is more important than ever to hire a skilled attorney when entering into a divorce, to ensure your interests are protected no matter what.

Compassionate. Fair. Ford & Friedman.

The Henderson divorce lawyers at Ford & Friedman have years of experience representing individuals across Nevada, including many going through high asset divorces. From alimony to child support, we offer compassionate and dedicated representation designed to safeguard your interests above all else. Don’t enter into a divorce without legal representation that will fight for you. Hire Ford & Friedman to protect what’s yours today.

Call (702) 904-9898 now to schedule a consultation, or contact us anytime online.

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