Heymann & Fletcher

How will the new tax code affect alimony payments in New Jersey?

New Jersey couples considering a divorce have a host of decisions to process. Couples must determine their living situation, child custody, child support and alimony. Couples considering a divorce last year probably did not imagine that tax codes could have an impact on future divorce negotiations.

In late 2018, tax codes were revised and approved by the federal government. Among the codes affected were ones addressing alimony. For 75 years, tax codes have allowed any paid alimony as a tax deduction. Any spouses receiving alimony were required to pay taxes on alimony funds. The new tax code that will begin January 1, 2019, has altered the long-standing system now offering no tax deduction on alimony, and the receiver will no longer pay taxes on any received alimony.

While the current tax code may have seemed unfair to the spouse receiving alimony, divorce attorneys and mediators explain the previous tax code as beneficial to both spouses. Attorneys state that many spouses would agree to more alimony after understanding that the tax deduction would actually cost them less than expected once taxes were finalized. There is uncertainty about how the new tax code will affect divorce negotiations; some suspect that some spouses may agree to less alimony without the tax deduction benefit.

Many who are now receiving alimony are also uncertain if the new tax code will affect current and established alimony payments. Currently, experts are unsure. While there is much uncertainty with the new tax code, skilled family law attorneys in New Jersey will be informed of the most up-to-date information regarding the impact of the tax codes on alimony and will be able to advise spouses accordingly. 

Source: cnbc, "Alimony tax changes may scorch divorcing couples", Annie Nova, Feb. 16, 2018

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