From property division to spousal support, financial issues have been some of the most significant factors for Connecticut couples going through a divorce. Alimony payments are already a contested issue in many divorces, leading to lengthy negotiations and even court battles. Spousal support issues could become even more complex, however, following the adoption of changes to the U.S. tax code in Dec. 2017.
While each state has an individualized approach to spousal support, there has also been a uniform federal tax approach to the finalized payments. In federal tax law, the payer of alimony has been able to deduct those payments from their income taxes. Meanwhile, the recipient of spousal support reports the income and pays taxes on it alongside their other income. However, as of Jan. 1, 2019, this situation will flip as alimony payers will no longer be eligible for a tax deduction. On the other hand, support recipients will no longer need to pay taxes on the income received.
This is expected to have a variety of impacts on the alimony payments that emerge from negotiations and court orders. The overall payments may be lower as the tax burden will now make those support bills much more expensive for the payer. For the recipient, the funds will no longer be eligible for investment in an Individual Retirement Account restricted to taxed income.
The changes are sending some couples to a family law attorney to seek advice about the impact of the changes and to act quickly to finalize a divorce in 2018 prior to the new law's effective date. A divorce lawyer may be able to provide representation for a spouse seeking a divorce on a wide range of contentious matters, including child custody, spousal support and property division, to achieve a just settlement that protects a divorcing spouse's assets.