The proposed tax bill that Congress is working on includes a big change to alimony/spousal support. According to the latest version of the bill, beginning with divorce agreements executed in 2019, alimony will no longer be a deductible expense for the ex-spouse who pays. And the recipient will not have to pay tax on the alimony he or she receives. This change could be a big deal for divorcing couples. While it could save some money for the person who gets alimony, it may make the higher-earning spouse less inclined to pay spousal support – and have less money available to distribute -- if there is no tax benefit to the payment.
In New Jersey, determining the amount and time period of spousal support or alimony requires a balancing of factors – the length of the marriage, the parties' age, health, income and ability to earn, etc. Currently, the alimony payments are taxable income for the person who receives them, and a tax deduction for the payer.
In divorce mediation, we work with our clients to develop a fair spousal support plan that also takes into account the divorcing couples' assets and debts. In our experience at Westfield Mediation, LLC, the current tax rule generally encourages divorcing couples to include spousal support in their agreements, because both the payer and the payee benefit. It will be interesting to see how this proposed change plays out in the real world of divorce.