Proposed Tax Bill Would Have A Huge Impact On Divorces

With the current news cycle, there are a lot of competing stories to get our attention. From tragic shootings, to scandals in entertainment and politics, our news feeds are full of attention-grabbing headlines. 

One story that you may have missed involves the current proposed tax bill from the House Republicans. If this tax bill goes into effect, it will have a major impact on alimony (spousal maintenance) payments – the spousal support awarded as part of a divorce. Here is what you should know about the proposed legislation.

How spousal support is treated now

Under the current tax code, spousal maintenance payments are usually deductible to the obligor (person paying alimony) and included as income to the obligee (person receiving alimony). The benefit to the obligor is that depending on their tax bracket, the amount they pay in alimony is actually a smaller net amount because of the deduction. Without this deduction, negotiating spousal support will be much more challenging for everyone. Examples can be found here

How spousal support would be treated under the new tax bill

Under the new tax provisions, the obligor would not be able to deduct the amount they pay in alimony. This has the effect of hurting the obligee. The tax deduction has the effect of putting more in the hands of the recipient spouse at a lower cost to the obligor. 

Other provisions affecting divorces

In addition, the bill proposes to reduce the amount of mortgage interest that is deductible. This would impact the division of the family home and its resulting financial implications.

Reverse mortgages, more common in gray divorces, would be affected as well with a new proposed limit of $500,000. 

If it becomes law, these changes will be in effect after December 31, 2017. If you believe this may affect you, be sure to speak with an experienced divorce attorney or professional tax accountant/advisor today.

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