How the New Tax Law Affects Maintenance (Alimony)

How the New Tax Law Affects Maintenance (Alimony)

Tax reform legislation passed by Congress at the end of 2017 implemented vast changes to both individual and business taxes, including new tax provisions for alimony agreements. Beginning next year, alimony – a form of spousal support called spousal maintenance in Wisconsin – is no longer a deduction on federal income taxes. If you are in the process of divorcing, or believe divorce may be on the horizon, it is essential that you understand the implication of this tax overhaul on your financial situation post-divorce.

Understanding the old and new laws

The existing tax law, which is still in effect through the remainder of 2018, allows the spouse that is paying maintenance to deduct on their federal income taxes the amount of the alimony payments that were made during the taxable year. The law also requires that the spouse that received the maintenance report the payment as part of the year’s gross income on their federal income taxes.

The new tax reform legislation signed by Congress late last year eliminates the alimony deduction entirely. Spouses paying maintenance will no longer be able to deduct the payments on their taxes and the spouses receiving the support will no longer be required to report the payments as taxable income. This new tax law is set to become effective with maintenance agreements that are put into place after December 31, 2018. Individuals who are currently paying maintenance are not affected by the change in the law, and can still deduct the payments on their taxes. Approximately 600,000 Americans claimed the alimony deduction on their federal income tax returns in 2015, according to the Internal Revenue Service. This change in the tax law has a significant financial impact on couples seeking divorce, particularly those who have lower income.

How spousal maintenance works

The purpose of spousal maintenance is to provide financial support to a spouse who was financially dependent upon the other spouse while they were married, and for fairness purposes in long term marriages. Support may be provided until that spouse can become self-supporting. The Wisconsin courts, in making this decision, consider a number of factors, such as the length of the marriage, physical and mental health of each spouse, how property was divided in the divorce, and other factors.

Contact our skilled Milwaukee divorce lawyers if you have questions regarding the new tax laws and alimony

Couples who are divorcing or thinking about divorcing should consider the implications of the new federal tax reform as it pertains to alimony agreements. The attorneys at the family law firm Bandle & Zaeske, LLP in Milwaukee guide couples through the process of divorce, answering your questions, explaining the law, and advocating on your behalf for the best possible outcome in your divorce settlement. To discuss your situation with a member of our team, schedule a complimentary consultation by contacting our office at 414-359-1424 or online.

More Articles