Divorced spouses in Maryland who pay alimony have been allowed to deduct these payments on their tax returns since the Revenue Act was passed in 1942. However, this rule will be changed in January 2019 when certain provisions of the Tax Cuts and Jobs Act go into effect. Under the new income tax rules, alimony is no longer a deductible expense for those who pay it. Furthermore, those who receive spousal support are not required to report the payments as income.
The change will likely impact the divorce negotiations of hundreds of thousands of couples. Figures from the Internal Revenue Service reveal that more than 600,000 taxpayers claimed alimony deductions on their 2015 tax returns, and legal experts say that divorcing couples worried about the looming tax law changes are working hard to conclude negotiations before they take effect. This is because spouses who pay alimony are generally taxed at higher rates than spouses who receive it.
Other changes to the tax code could also impact divorce negotiations. Revisions to the way flow-through entities such as Subchapter S corporations are taxed could lead to bitter disputes over what family-owned businesses are worth. Furthermore, prenuptial agreements that include spousal support provisions may have to be renegotiated in light of the new tax rules.
Experienced family law attorneys may call upon experts like forensic accountants or financial planners to ensure that their clients have all of the information necessary to make prudent decisions. When a deadline is looming and negotiations are at loggerheads, attorneys may suggest taking an alternative approach such as mediation to break the impasse.