The new tax plans have been a source of real uncertainty for any divorce attorney Charleston SC for several months now. As we have seen this finalized, it now has many people asking how it will affect their current or future settlement agreements.
The biggest question that clients who are actively involved in or preparing for divorce litigation ask is …
What happens to my current or future alimony payments?
Simply put, it’s complicated and you should seek the advice of both your divorce attorney Charleston SC and your accountant, but here are a few points that you need to know specifically as they relate to alimony:
1. The tax treatment of alimony will not be affected in agreements signed and approved by the court prior to January 1st, 2019.
All pre-existing court-approved orders will be grandfathered into the old tax law. What does that mean? If you have an existing agreement, or will have one before this year is over, you will not be impacted by the new tax legislation with regard to alimony. Unless otherwise agreed, alimony payments will be deductible to the payor and taxable as income to the payee. However, please understand that simply signing your agreement is not enough. A judge must approve your agreement and make it a court order prior to that date as well. You will want to work closely with your attorney to ensure you have court approval before the end of the year if you are looking to keep your alimony tax-deductible.
2. On January 1, 2019, everything changes.
If you finalize an agreement after January 1, 2019, any alimony payments will not be deductible to the payor, and will not be taxable as income to the payee. As the law presently stands, this arrangement will be in place at least through the end of 2025. This will have the effect of treating alimony like child support for purposes of taxation. The person paying alimony will see higher tax bills as a result, and people receiving alimony will see lower tax bills. The likely (and perhaps unintended) result of this new law will be a decrease in the amount of alimony awards in future years. This is something to keep in mind when discussing your monthly needs with your divorce attorney Charleston SC if you are going to be seeking alimony payments.
3. Nobody knows what will happen at the end of tax year 2025.
The current tax plan has only been approved through the end of 2025. It may revert back, it may stay exactly the same, or we may have a different plan altogether. If you have an agreement approved by the court before January 1, 2019, this is not as troublesome for you, because the new tax law will not impact you. However, if you will be finalizing an agreement after January 1, 2019, you will want your divorce attorney Charleston SC to fully develop your options for re-addressing payments, depending on what 2025 may hold.
As you can tell, there are a lot of moving parts to this new tax plan and perhaps a number of reasons that one scenario or the other may benefit you. Be sure to work with your divorce attorney Charleston SC to find out how it will affect you personally, and how to structure you settlement in accordance with the same.