People who might pay alimony, or payors who want to modify it, might want to consider taking action sooner rather than later. Regardless of which side of the issue you’re on, big changes will affect original and modification judgments for alimony after Dec. 31.
For decades, alimony payors could exclude the alimony they paid from their taxable income, and recipients had to pay income tax on alimony they received, so long as the alimony met certain criteria. For judgments entered after Dec. 31, all that will change and will change dramatically thanks to the recent federal tax law overhaul. The changes are prompting many family law attorneys and financial planners to advise our potential alimony-paying clients, or those actually paying who want a change, to act fast.
People with premarital agreements providing for alimony are not safe from the tax law changes. Effectively, because of the income tax reforms, alimony might cost the payor more than what he or she contemplated, not to mention the recipient might wind up with more spendable alimony. Once a couple is married, a premarital agreement is often difficult to amend, but it might be worth it to avoid unforeseen consequences. If the parties to a premarital agreement waived alimony, as they often do, they will be unaffected by the new tax laws.
For those now contemplating filing for divorce, modifying an existing judgment or amending a premarital agreement, now is the time to act. Divorces, modifications and amendments to premarital agreements are likely more time-consuming than what the uninitiated might expect. Though attorneys and financial professionals undoubtedly try to accommodate their clients, time imposes limitations. For those involved in litigation, the wheels of justice might not turn at the speed one wants.
Good attorneys consider the goals of their clients, whether it is to minimize/maximize alimony or to eliminate the need for alimony altogether. One should not lose sight of the fact that the change in the alimony tax laws was designed to increase the tax collected on alimony, offsetting some of the other savings for other taxpayers. The more alimony is taxed, the less money is available for alimony.
Family law attorney Lawrence Datz is a former president of Florida’s Association of Family and Conciliation Courts. His firm, Datz & Datz, concentrates on family law with a focus on complex and high-asset divorce law cases.
