Your Alimony Payments May Not Be Tax-Deductible: Here’s What You Need to Know

Your Alimony Payments May Not Be Tax-Deductible: Here’s What You Need to Know

On January 1, 2019, alimony from new agreements and court orders will no longer be tax deductible to the payor of the alimony.

Likewise, alimony will no longer be taxable to the person receiving the alimony.

If you think you are going to be paying alimony, find a highly experienced divorce attorney, get a great education, and do your best to enter into an enforceable written agreement for the payment of alimony right now!

There is a great deal of information you should know, but for starters, let’s break this down into two categories: first, where there has never been an agreement or court order for alimony, and second, where there is presently an agreement or court order for alimony.

No Alimony Agreement or Award Yet

These are the cases with the higher level of urgency. As of now, there is likely insufficient time to file a court action and have a trial that results in an alimony award. Thus, the only way to end up with an award of alimony is by a written agreement. This can be done by using mediation or other processes, as long as the result is in writing.

Any alimony agreement or court award that occurs in 2019 or after will not be subject to the present law, but rather, the future law. That means no deductions for the person paying the alimony, and no income taxes paid by the recipient.

Of course, that leads to the conversation of whether there should be any alimony. There are many factors to determine this, but in Maryland – after  applying those factors – it is entirely up to the discretion of a judge whether to award alimony, how much, and for how long.

Apart from the length of the marriage, key factors tend to be financial, such as the ability of the payor to pay alimony, and the need of the potential recipient. This is truly only a thumbnail sketch. An experienced divorce attorney can provide an initial analysis regarding alimony prior to moving forward.

Modifying an Existing Alimony Agreement or Award

There may be a bit of good news for someone presently paying alimony pursuant to a written agreement or Court order. If that alimony award is modified, the old statute applies, allowing for the payor to deduct that alimony and for that alimony to be taxable to the recipient.

This continues to create a powerful financial incentive to pay alimony under certain circumstances.

The Bottom Line

If you are presently paying alimony or think you might be ordered to do so in the future, it is important you seek out an experienced family law attorney immediately.

If you don’t, you could be paying alimony in the future without it being tax deductible. If you’re wondering how much of a benefit the present tax law could offers, consider this: At high tax brackets, for every $1,000 per month of paid alimony, your deduction could be as high as $300 per month, yielding a net alimony payment of only $700 per month.

That should be worth a conversation, at least.

Call SIEGELLAW today at 410-792-2300 or fill out our form to schedule a free initial consultation.