New GOP Tax Plan Could Significantly Impact Marriage Settlements

The House released their plans for tax reform on November 1, 2017, and one item on the reform is to eliminate tax deduction on alimony. This decision could have a serious impact on the marital settlement process in the future. The tax reform could even require re-negotiation for divorces occurring in 2017 based on the assumption that the maintenance already ordered would be tax deductible by the payor.

For years, transferring taxation of spousal maintenance to the lower-wage spouse was a way to ensure the maximization of the combined incomes of ex-spouses while simultaneously allowing the lower wage earning partner to pay taxes on support at their lower rate. If the new tax proposal passes, the higher earning partner will be impacted significantly. We’ve seen this many times with new taxes changes. It’s the old saying, “Robbing Peter to pay Paul”, if we decide to eliminate the Estate Tax, it has to be paid for in another area.

In actuality, the payor will have less money available to contribute to support funds which will cause the recipient to receive less. Unfortunately the government will get more, while the one who is in need, is most likely to be negatively impacted. This unfortunately, happens more often than not.

Of course nothing has passed yet, but this new aspect could impact your divorce planning! We’ll be closely watching the changes and discussion to come in the following weeks.