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What effects are new tax laws having on divorcing couples?

If you and your spouse agreed to a divorce settlement in New Jersey before Dec. 31, 2018, the old rules regarding alimony, in which the recipient pays taxes on alimony, and the payer deducts it from his or her taxes, still apply to you. However, if you did not reach a settlement until after the first of the year, the provisions in the Tax Cuts and Jobs Act of 2017 now apply to your spousal maintenance arrangements. That means that if you are to pay alimony to your ex-spouse, you cannot deduct the payments, but if you are the recipient, you do not have to pay taxes on it. 

Because the rule change is relatively new, the full effects are not yet known. However, according to CNBC, the change is already having an effect on prenuptial agreements negotiated before the rules changed. These agreements are now in limbo because the courts have yet to decide whether and how to revise the terms of existing agreements according to the new rules. It will take time for the court to make those decisions. 

Despite the shifting demographics that have seen more women become family breadwinners, men still represent only 3 percent of alimony recipients. Most alimony recipients are still female, and many women who expect to receive alimony have celebrated the change in the tax law under which there will be no requirement for them to pay taxes on spousal maintenance. Such celebrations represent a misunderstanding of the implications of the law. They assume that alimony recipients will receive the same amount as before the change went into effect.

In fact, alimony payments are likely to decrease as a result of the TCJA. Experts predict that the pool of available money from which the payer draws alimony payments will be smaller as a result of the new law, meaning that alimony payments are also likely to shrink proportionately, and women are likely to receive less than they would have otherwise. 

You may wonder who stands to benefit from the new rule. The answer is the federal government. Experts expect the Internal Revenue Service to gain billions in revenue over the next 10 years, thanks to the TCJA. 

The information in this article is not intended as legal advice but provided for educational purposes only.

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