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If You Are Paying Alimony Get Ready for a Huge Tax Increase

Are You Paying Alimony to Your Ex-Spouse? Get Ready for a Huge Tax Increase When the New Tax Cut Law Takes Effect

Republicans in Congress, commentators and President Trump often repeat that the middle class will all benefit from the new tax cut law. [1]

From a family law perspective, that is simply not accurate. There are many middle class and other taxpayers, who are divorced or who will get divorced, who will see a huge tax increase in 2019. That is because under the old law, which was in effect for more than 70 years, alimony payments (also called “maintenance” or “spousal support”) were tax deductible to the person paying the alimony. Under the new tax law, alimony payments made will not be deductible, starting in 2019, for new divorce cases and modification of prior cases. With approximately 1/2 of all US marriages ending in divorce, this tax problem affects millions of people.

Alimony Example 1:  Ten Year Marriage

  • Ex-Husband is an engineer and earns $70,000 per year, which is $5,833 per month.
  • Ex-Wife earns $0 per year. She is a stay at home mom, with children under 30 months old.
  • According to the alimony formula in Colorado, the monthly maintenance is $2,333.20 per month for 4 years, 6 months (54 months) (Each state has its own laws for how to calculate maintenance. Colorado law includes an obligation for the Court to consider a formula). Annual alimony/maintenance/spousal support payments: $27,998.40 per year [deductible by Ex-Husband under current tax law].
  • Under the new “tax cut” law, $0.00 annually is deductible by Ex-Husband.
  • That is a huge tax increase, which is NOT offset by the increase in the personal deduction to $12,000 annual for a single tax payer.

Alimony Example 2:  Ten Year Marriage

  • Ex-Wife works for Google and earns $120,000 per year, which is $10,000 per month.
  • Ex Husband is a teacher and earns $48,000 per year, which is $4,000 per month.
  • According to the alimony formula in Colorado, the monthly maintenance is $1,600.00 per month for 4 years, 6 months (54 months).
  • Annual alimony/maintenance/spousal support payments: $18,000.00 per year [deductible by Ex-Wife, under current tax law].
  • Under the new “tax cut” law, $0.00 annually is deductible by Ex-Wife.
  • That is a huge tax increase, which is NOT offset by the increase in the personal deduction to $12,000 annual for a single tax payer.

Alimony Example 3:  Ten Year Marriage

  • Ex-Husband is self-employed, runs his own business, and after paying all of his business expenses, he earns $100,000 per year which is $8,333 per month.
  • Ex-Wife does not want to work, but she has no young children at home. The judge says she is capable of making at least Colorado minimum wage, which is $9.30 per hour, or $19,344 per year full time ($1,612 per month).
  • According to the alimony formula in Colorado, the monthly maintenance is $2,366.00 per month for 4 years, 6 months (54 months).
  • Annual alimony/maintenance/spousal support payments: $28,932.00 per year [deductible by Ex-Husband, under current tax law].
  • Under the new “tax cut” law, $0.00 annually is deductible by Ex-Husband.
  • That is a huge tax increase, which is NOT offset by the increase in the personal deduction to $12,000 annual for a single tax payer.

Conclusion

If you are paying maintenance (alimony /spousal support) to your ex-husband or ex-wife, you should talk with your lawyer and your tax advisor to prepare for filing a motion to modify your monthly payment, based on new “tax cut” law.

 

[1] The Author is not associated with any political party.