The new tax law will have a significant impact on couples who plan on getting a divorce in the near future, eliminating the federal tax deductibility of alimony (or maintenance, as it’s referred to in New York) payments on divorces that are finalized after December 31, 2018. In any divorce commenced after that date, the spouse paying alimony cannot deduct it, and the spouse receiving the money no longer has to pay taxes on it.
“It will have an impact on how we negotiate settlements,” stated Attorney Lloyd Rosen of Wisselman, Harounian & Associates, according to Long Island Business News. Legal experts say the new law will affect how divorce agreements are settled since tax deductions have always served as an important negotiation tool. The net effect of the new tax law may result in fewer dollars in the payee spouses’ pockets.
The current tax rules allow for divorce lawyers to craft a settlement whereby it is possible to make larger payments to the receiving spouse at a lesser after-tax cost to the payor, benefiting all parties. The payor receives the benefit of a reduced tax obligation and the payee receives the benefit of more income than otherwise would be forthcoming if the payee spouse wasn’t receiving the benefit of the tax break.
Additionally, New Yorkers have another concern: the capping of the state and local tax deductions. For example, it is common in a divorce agreement for one party to stay in a marital residence to let the children finish school and allow the spouse to adjust to divorce. However, now that the SALT deductions are capped at $10,000, there is less incentive for one spouse to pay another to stay in the marital residence without receiving a tax deduction.
The cap could result in losses in the thousands per month. With less money to maintain the household, divorcing couples may elect to sell their homes sooner than later.
Alas, Attorney Rosen doesn’t think the new tax law will dramatically change the number of people getting divorced. He said, “[While] I don’t think it will motivate someone to hold off if they had made the decision, I don’t think we’ll get a significant change in the number of filings because of the new tax law.”
If you are interested in filing for divorce in New York before the new tax law takes effect, contact our knowledgeable and reputable legal team at Wisselman, Harounian & Associates. Get more than 150 years of combined experience on your side today.