A change in the new Republican tax law will eliminate a tax break for alimony payments that are finalized after Dec. 31, prompting financial planners and lawyers to warn wealthy clients that if they have been contemplating filing for divorce, they had better act fast.
As The New York Times reports, under the law, Americans who finalize or modify divorce agreements in 2019 or later will no longer be able to deduct alimony payments from their taxes.
Agreements signed before the end of the year will still qualify for the annual deduction—a distinction with large financial implications for couples where one partner earns substantially more per year than the other.
“I have never wanted to counsel people, hurry up and get a divorce,” says Fern Frolin, a divorce lawyer in Boston, whose clients often have high incomes. “I always want to say, ‘Take your time, think if this is the right thing for you.’ But in this particular instance, we could be talking about 15 to 20 years of support, and shifting the tax burden for the last years of a person’s working life.”
For decades, Americans paying alimony to a former spouse have been able to deduct the payments from their taxes, providing a potentially generous tax break depending on the size of the payments and the gap in earnings between spouses. About 600,000 taxpayers claim the deduction each year, according to the Internal Revenue Service.
That deduction provides a significant benefit to the wealthiest Americans, whose top tax rate is 37% and who would otherwise owe taxes on all of their income, including what they paid out in alimony. The rich disproportionately deduct alimony—about 20% of taxpayers who currently claim the deduction are in the top 5% of household income earners.
