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Tax Cuts and Jobs Act: How Does the Act Relate to Divorce and Prior Agreements?

Man with a tax ball and chain

The recent Tax Cuts and Jobs Act, signed into law on December 22, 2017, by President Donald J. Trump, leaves matrimonial and family lawyers eager to understand its implications in preparation for an overwhelming number of questions from past, present, and future clients.  The Act repeals the deduction for the alimony payments and their inclusion as income to the alimony recipient.  However, to give taxpayers time to adjust to this change, this new law will apply only to divorce or separation instruments recorded after December 31, 2018.

Originally, the law was to take effect after December 31, 2017, and there was a mass frenzy to finalize divorce agreements to take advantage of the taxability and deductibility of alimony.  Now that we have one year to figure out the long- and short-term implications of this significant departure from the prior law, there will be many areas where this change will impact pending divorces and also those already concluded.  Most significantly, of course, will be the issue of alimony and how this will be calculated, considering that similarly to child support, it will no longer have a tax consequence.

Our Child Support Guidelines take into consideration that alimony is both taxable and deductible, so they will need to be updated, and child support may be impacted.  Other agreements or settlement instruments may have specifically taken into consideration the benefit of the tax deductibility, and this may provide a basis to review the terms of a prior agreement on a more global scale.

Without doubt, the impact of this new law will be broad.  If you have any questions or concerns as to how the Tax Cuts and Jobs Act might impact you, please do not hesitate to contact me at jllawrence@nmmlaw.com.