Spring is tax preparation season, even with the recent filing extensions. This year, spouses who went through a divorce must deal with a new federal tax law that governs filing status and support payments.
Classification as married or single affects a taxpayer’s filing status and, potentially, their tax deductions or liabilities. This also plays an important role in financial and tax planning and structuring and negotiating support payments in a divorce.
The Tax Cuts and Jobs Act governs divorces that a court formally recognized in a legal proceeding no later than Dec. 31, 2019. For tax filing purposes, a couple is considered as divorced for all of 2019 if the divorce was finalized before or after that date.
Likewise, the couple is still classified as being married in 2019 if their divorce was not finalized after Dec. 31. It does not matter if the couple lived apart during that time.
The tax law made significant changes to spousal and child support. Starting in the 2019 tax year, spousal support payments are no longer deductible to the payor spouse if the divorce and support payment agreements were finalized in 2019.
The recipient spouse does not have to report alimony as income. Spousal support payments finalized on or before Dec. 31, 2018 will still be tax deductible to the payor spouse and reportable as income to the recipient.
Support payments must meet the definition of alimony in the new tax law. These payment must be governed by a written instrument, paid on behalf of the spouse or former spouse and paid in cash or a cash equivalent. The payments cannot be considered child support or continue after the recipient’s death and the couple may not live in the same household.
Support payments and property division can have financial and tax consequences. An attorney can discuss options and help assure that a fair and reasonable decree is issued.
