As Philadelphia family lawyers one of our most important jobs is staying on top of legislative changes and proposed legislative changes which might have an impact on our client’s cases.
And as we move into the final month of tax time it’s the ideal moment to draw your attention to a very recent tax law adjustment which could have an impact on your divorce case. This change will also impact anyone who is paying or receiving spousal support.
See also: Spousal Support and Alimony in Pennsylvania.
Under the original law, for the past 75 years, spousal support was tax-deductible for the payer and taxable for the payee. Now, the tax deduction is going away, and the recipient of spousal support funds will not have to pay income taxes on them.
This change can and should impact the way you try to negotiate your divorce settlement, unless you can get your divorce wrapped up before January 1, 2019, when the law goes into effect. The new tax law will not apply to existing agreements, which will continue to work exactly as they always have.
It’s obvious that this change could have a negative impact on the payer, but there are advantages to the old law for the payee as well. As the Post-Gazette reports:
“The end result of the rule change, divorce attorneys and family law experts say, is that more money will end up going to the government.
That is because, in most cases, the spouse paying alimony is in a much higher tax bracket than the spouse receiving the money. The difference between the tax brackets provides a benefit to the spouse paying the alimony and an even greater benefit to the one receiving it — because the spouse receiving support payments is getting more in actual dollars than the spouse paying it.”
It may also eliminate certain advantageous ways we would file or word agreements to maximize the savings for the payer and the payout for the payee. It also may eliminate incentives. We can expect to see potential payers fighting a lot harder to get out of paying spousal support in the future.
There is also little doubt that the court system will begin overhauling its guidelines for temporary spousal support based upon the new tax laws. Rule changes are already under review. These guidelines often provide a starting support for spousal support negotiations and rewards in our family court system.
Concerned these tax law changes will impact your divorce? Don’t delay. Call us to schedule your free consultation today.