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Alimony will be handled differently in 2019

For people in El Paso planning to divorce, they may be concerned about the changes to tax law that will go into effect with the dawn of 2019. The Tax Cuts and Jobs Act, passed in late 2017, contains several provisions that will affect the way that people who divorce handle their finances, but the changes do not go into effect until Jan. 1, 2019. One of the most significant changes relates to the tax treatment of alimony payments, which has remained the same for decades.

As the changes do not apply to divorces that are already finalized, many people rushed to complete their separation before the end of 2018 to keep the existing tax laws. For people who divorce in the new year and beyond, however, the new regulations will apply. Under existing tax law, spousal support payments are tax-deductible to the payer, while the recipient of alimony pays taxes. In general, this leads to significant tax savings, because the recipient usually pays taxes in a lower bracket than the payer. This overall savings has been a strong incentive for many couples to reach a divorce settlement with generous alimony provisions.

The 2019 changes reverse this tax framework. Instead, alimony payments will no longer be tax-deductible for the payer, eliminating a strong incentive to agree to them. The recipient will receive the funds tax-free, on the other hand. While this may seem a boon to lower-earning spouses, it could lead to an overall decrease in the total amount of spousal support payments instead.

The financial aspects of divorce are always some of the most significant, and that includes the changes that affect tax law. A family law attorney might be able to help a divorcing spouse to achieve a fair settlement on a range of issues, including property division and spousal support.

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