New Taxes Will Change NC Alimony Payments in a Big Way

Charlotte Divorce Lawyers Predict Massive Filings in 2018

Rushing to divorce is never a good idea.  There is just too much at stake.  New taxes will change alimony in a big way because it affects spousal support, alimony payments, and how much money is available for alimony.  2018 promises to be a wild year for Charlotte divorce lawyers.

Tax experts and divorce lawyers expect record filings and a mad dash to the courthouse.  Here’s why:

NORTH CAROLINA ALIMONY PAYMENTS WILL NO LONGER BE TAX DEDUCTIBLE 

 

Charlotte Divorce Lawyer - Megan Powell - NEW TAX LAW AFFECTING ALIMONY PAYMENTS

Alimony in North Carolina is “spousal support” to one of the former parties in the marriage after a NC divorce. Child support is different, although it may also be paid to the person receiving alimony.

People looking for divorce legal advice commonly ask, “How much is alimony in North Carolina?”  or “How does the new tax law affect alimony.” Calculation of alimony payments is often a complicated, complex process.  Alimony (marital support) is often disputed in any divorce case.  Alimony payments can also be ordered by the Court if the parties just can’t agree.  

Charlotte divorce lawyers worry that the tax-law change will make negotiations tougher in divorce cases. There will be less money for spousal support, since more cash goes to government taxes instead of alimony. Once the new tax-related divorce law goes into effect:  

  • The spouse paying alimony can’t deduct these payments  on their taxes
  • The spouse receiving the money won’t pay taxes on alimony

That may seem like a good idea, but the ability to deduct alimony payments has a BIG effect on how much money is ultimately available as part of a divorce.

Here’s the math

Lets say high-earning Spouse A now pays and deducts $30,000 each year in alimony payments. Spouse A’s income is taxed at about 1/3rd (33%).  Being able to deduct alimony payments, it saves Spouse A about $9,900 in taxes every year.

Prior to the tax law change, lower-earning Spouse B is required to pay taxes on alimony at a 15-percent rate, which works out to around $4,500 as taxable income from the alimony payment.  Spouse A and Spouse B save $5,400.  And Spouse A got a tax-break, which made the alimony payments more affordable.

In the long-run, the only person who will get more money from a divorce will Uncle Sam.  And the spouse receiving alimony payments will most certainly receive less alimony when it’s all said-and-done.

Even if alimony is no longer considered “taxable income,” the bottom line won’t be good for the party receiving post-marital support.

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Why Did Congress Change Taxes on Alimony? 

The United States Congressional House Ways and Means Committee, who is responsible for the new law, calls the current alimony deduction a “divorce subsidy.”  Right now, alimony payments are tax deductible to the person PAYING ALIMONY.

The new tax law completely removes the deductible, making alimony payments 100% taxable.

“A divorced couple can often achieve a better tax result for payments between them than a married couple can,” is what a representative on committee pointed out.

As justification for the new law,  it’s argued that alimony should be treated like child support.  CHILD SUPPORT already is NOT tax-deductible for the payer.  Similarly, child support is NOT taxable for the recipient of the support.

The Joint Committee on Taxation, a non-partisan division of Congress, estimates repealing the deduction will add $6.9 billion in new tax revenue over 10 years.

Why Are Charlotte Divorce Lawyers Concerned About Alimony Deduction?

Divorce lawyers worry that without the deduction, higher-earning spouses won’t pay as much alimony to their former spouse. Tax experts believe alimony recipients may lose anywhere from 10% to 15% percent of what they’d get under the current alimony laws.

Congress is taking money from people at the absolutely worst time in their life, after they’ve gone through a divorce.  Ending a marriage in itself traumatic.  This is going to be tough on people who must survive on alimony.

– NC Divorce Attorney Megan Powell 

Some prenuptial agreements have provisions based on the alimony tax deduction always being in place.  It might require a long-term assessment of the alimony laws and alimony guidelines in North Carolina.

The American Academy of Matrimonial Lawyers and the National Organization for Women are against the change, favoring the current status of an alimony tax deduction.  The effective date changed to 2019, which gives people seeking a divorce a little breathing room.

But, that means there will most certainly be a push to settle-up divorce cases in North Carolina in 2018.  Filings will surge, as people will want to make sure they get the tax deduction for alimony.

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