Here's How New Tax Rules for 2019 Will Affect Divorced Couples This Year

"Divorce month" is upon us, folks

Updated 01/16/19

Bo Bo / Stocksy United

Perhaps in the spirit of the "new year, new me" mentality that runs amok at the beginning of the year, January has ironically landed a not-so-great association: divorce month. And, with said time frame currently in full swing, new tax rules will actually impact couples who split up in 2019. Spoiler: Divorces are about to get a lot more expensive.

According to Business Insider, certain components of the GOP tax law, which passed in December 2017, are now coming into effect. As it pertains to all divorces filed after January 1, this new ruling does away with a longstanding tax deduction for alimony.

Prior to this year, the higher-earning partner paying for spousal support could deduct the alimony from federal taxes, and the recipient would then pay based on his or her tax bracket. Now, though, the higher-earning spouse no longer has a tax benefit and the lower-earning spouse isn't required to cover taxes for the alimony. Essentially, these new tax rules mean that alimony payers will face even more of a financial burden.

To put it in context, Alvina Lo, chief wealth strategist at Wilmington Trust, offered the following example, per Business Insider: "A husband and stay-at-home wife earn a total income of $500,000. Upon divorce, the husband is to pay his former wife $150,000 in support payment. Under the old law, the husband would get a deduction for $150,000 (husband's tax rate is 35 percent) and the wife pays income tax on $150,000 at 24 percent. Under the new law, the husband pays income tax on $150,000 (his tax rate is 35 percent). There is no deduction and the wife does not pay income tax on $150,000."

And, as Lo's example demonstrates, most women end up being alimony recipients, which poses even more of a problem under the new system. Another piece of the tax law, a $10,000 limit on state and local tax deductions (SALT), means ex-spouses receiving alimony will have a harder time financially keeping their marital homes.

"Prior to the tax law change, someone with a modest spousal support payment, and perhaps a lump sum payment that generates investment income, could stay in a sizable marital home if she (and it's typically the wife in cases like this) could also deduct a significant amount in terms of SALT deduction," Lo notes. "With SALT deduction limited to $10,000, the overall tax burden is higher and it is becoming more difficult to stay in the marital home."

Many groups, including the The National Organization for Women and American Academy of Matrimonial Lawyers, publicly opposed the tax bill in its early congressional stages. The former's president, Toni Van Pelt, argued that women will be less likely to get much-needed support since their spouses would have less money without the deduction.

"It's something that's really important to women," Van Pelt previously told Associated Press. "We are really concerned because it would make tough, tense negotiations between couples even worse."

Madeline Marzano-Lesnevich, president of the law academy, shared a similar sentiment. "Alimony is an essential tool that has enabled countless spouses to adjust to a dramatically altered economic reality," she noted. "The financial security provided to families by spousal support is a valuable resource that needs to be further strengthened and not diminished by our representatives."

So, who does win here? The government, which estimates predict will rack in $6.9 billion in tax revenue over the next decade thanks to the eliminated deduction.

Related Stories