New Year, New Alimony Laws!
By the time you are reading this, it will likely be 2019 and as the years change, so often do many civil statues. In this case, the new tax bill is having far reaching implications on various areas, such as family law. What many may not know, is that the new tax bill changes how alimony is treated here in Florida. To help with this transition, we are going to fill you in on what the law currently is, in its own state, and will go over the new changes as well to give you some in depth knowledge of what you can expect.
The Alimony You’re Used To
In Florida, the spouse who earns the least is generally entitled to Alimony after the divorce proceedings. This financial support will continue until the death or remarriage of the recipient (or some form of cohabitation that resembles a marriage type relationship). This financial support is to be used for the maintenance of the receiving spouse and is usually granted for a variety of reasons. Usually, alimony is considered either permanent, durational which is set for a set period of time, or “rehabilitative” which is used to get the receiving spouse into a position where they are comfortably on their feet and can then take care of expenses without outside assistance.
Your Taxes Through 2018
The biggest sell of the law as it stood in 2018 was the ability to write off alimony as a tax deduction. In turn, the receiving spouse reported the alimony as taxable income. This made paying alimony on a schedule much easier to do. This also, usually meant that the higher earning party who is often the one paying the alimony was left with more money. Most concluded that this motivated the alimony spouse to provide more money, as money was still being saved through the deductions. Unfortunately for the alimony paying spouse, this ended as on January 1, 2019.
So Where Are We Now?
Simply put, the roles have reversed and the alimony paying spouse is responsible for paying the taxes. Any divorce that is finalized after January 1, 2019 is now subject to the new tax laws which should be noted is not retroactive. This change has been met with some criticism, however, as many argue that there is considerably less money in the pot for all. With this change, we should expect for there to be bigger pushes for lump sum payments or an effort to pay less in alimony. Furthermore, for those of you have divorced before the turn of the new year, if ANY terms are renegotiated after 2019. It must be stipulated that the agreement will remain under the 2018 tax law.
Simple But Far Reaching Changes
This change to the tax law, on the surface seems simple, but will affect hundreds of thousands of divorcees. This change will affect every single divorce and renegotiation of agreements that takes place after January 1, 2019. Thus, it is vital that you consult a family law attorney to help you navigate these new, uncharted waters.
The Federal Tax Law has changed; Who does that affect and how?
One of the most popular questions asked whenever anyone hears about a new law is often, “what does that mean for me?” and It is a very valid one. It is often difficult to understand everything that is changing with all of the legal jargon being thrown around. In this situation, the Federal Tax Law changed divorces in one fell swoop. Whether you are paying the alimony or receiving it, you will want to hear the pros and the cons of this change.
Why make the change?
This new change may be frustrating to many as you are after all losing the ability to deduct alimony payments from your taxes, which is certainly a good chunk of change. So, the question begs to be asked, why change the law in the first place? Well, a major point of contention for advocates is that it protects those lower income spouses. For instance, imagine being a recent divorcee. You are already struggling to make ends meet as you look to find a stable job since you primarily worked in the home during your marriage. As the divorcee, you sacrificed a lot in terms of your earning potential and any chance of career advancement but now, you are divorced and looking to make ends meet. Worst of all, you are finally receiving your alimony to help you through your troubles only to have to pay taxes for the little you are receiving. After all, alimony is often not enough to cover your expenses and is supplementary. Under the old tax laws, there was not much that could be done and you would have to settle for less. However, under this new tax law, you are no longer having to give away money that you didn’t have. The tax benefits are no longer geared towards the high earning spouse who in practicality, didn’t need it. The tax system now helps those who would benefit the most and not the higher earning spouse.
However, not everyone believes the government got this one right. From a very practical level, this change in taxation limits the total money that can be paid in alimony. With the loss of the tax deduction, you will see that people are likely going to try and pay less. Rather than paying $75,000 per year, the alimony paying spouse will likely try to pay significantly less to compensate for what they are losing in taxes. In fact, tax deductions were actually often used as a bargaining chip while at the negotiating table to try and get a higher payment from the alimony paying spouse. What this has essentially done is create a smaller pot for everyone to get a share from. This certainly does not seem to realistically dissuade those from filing for divorce as the tax deduction was hardly a reason to divorce in the first place. Instead, each party is now on the losing end of this deal.
So who are the winners and losers?
At a glance, it would seem as if this new change heavily favors the recipient spouse. After all, they no longer have to pay taxes on anything they receive. However, that is not the case. First,as mentioned above, the total pot of money will likely be smaller since tax deductions are no longer a bargaining tool. Second, this also hurts the recepitent as it limits what can be done with their money. For instance, alimony is no longer considered a form of income, and as such, cannot be invested into an IRA. While this may not be a huge blow to some, it certainly could be to others who try and be more forward thinking. Finally, negotiations will certainly be more difficult as the higher earning spouse will likely want to pay less alimony. They may even go so far as to wanting to pay in a lump sum as to avoid all of the tax payments.
If I had to pick a winner in this situation, it would likely be the alimony recipient While there are obvious shortcomings on both sides, the recipient spouse is the only one not paying money.