“Now’s not the time to wait,” said Mary Vidas, a lawyer in Philadelphia and former chair of the American Bar Association’s section on family law. “If you’re going to get a divorce, get it now.”
Potential divorcees have all of 2018 to use the alimony deduction as a bargaining chip in their negotiations with estranged spouses.
The deduction substantially reduces the cost of alimony payments – for people in the highest income-tax bracket, it means every dollar they pay to support a former spouse really costs them a little more than 60 cents.
The change is an example of how the tax law is having far-reaching consequences beyond its corporate and individual tax cuts, in some cases by quietly overturning decades of tax policy.
Many divorce lawyers criticize Republicans’ decision to end the break, saying it will make divorces more acrimonious. People won’t be willing to pay as much, they say, which will disproportionately hurt women who tend to earn less and are more likely to be on the receiving end of alimony payments. (Child support payments are not deductible.)
“The repeal reduces the bargaining power of vulnerable spouses, mostly women, in achieving financial stability after a divorce,” said Brian Vertz, a family law attorney in Pittsburgh.
Projected to raise $6.9 billion over the next decade, the repeal is one of the ways Republicans defrayed the cost of their tax rewrite.
A spokesman for House Ways and Means Chairman Kevin Brady (R-Texas) said, “This is one of the many provisions of the law that removes special rules applicable only in certain circumstances in order to help simplify the code and reduce tax rates for all Americans.”
The break has also long been criticized as a burden on the IRS because, if the alimony amounts ex-spouses report paying and receiving don’t match, it can force the agency to audit two people who may already be feuding. In 2010, there was a $2.3 billion gap between the reporting, according to the Treasury Department’s Inspector General for Tax Administration.
Alimony has been deductible since World War II. Added to the code in 1942, lawmakers have long believed it was unfair to tax people on the alimony they paid when the money was not available for them to spend.
The deduction is a big deal to splitting couples because if someone who earns, say, $250,000 – which puts them in the 24 percent income tax bracket under the new law – agrees to pay $4,000 per month, it really costs the person about $3,000 after taking the deduction into account.
Without the break, many people will agree to pay only what would have been their after-tax amount – in this case, about $3,000.
More couples will end up fighting in court because they won’t be able to agree on alimony terms, predicts Madeline Marzano-Lesnevich, head of the American Academy of Matrimonial Lawyers.
“It helps settle cases,” she said. “Without this, we will have husbands saying, ‘I’m not paying you that much.'”
That will have wives asking, “How do I live?” said Marzano-Lesnevich. Many will say, “Get me before a judge so I can plead my case.”
In an early draft of the tax legislation, House Republicans suggested it was unfair to offer a special break to divorcees, saying the repeal “prevents divorced couples from reducing income tax through a specific form of payments unavailable to married couples.”
The repeal is one of only a handful of provisions in the tax law that didn’t take effect immediately. While complicated new rules for multinational corporations, unincorporated businesses and a slew of other complex changes took effect Jan. 1, the alimony deduction repeal doesn’t kick in until 2019.
That’s a relief to many family law attorneys because it otherwise would have upended divorce proceedings around the country as people demanded to renegotiate alimony terms.
Meeting the deadline won’t necessarily be easy, though, lawyers say.
Many states have mandatory “cooling-off” periods, for example, for those seeking divorces. In California, people must wait six months before their divorces can be finalized; in Pennsylvania, people in certain circumstances must wait a year.
“You can’t just file for a divorce today, and expect that you’re going to be divorced tomorrow,” said Ed Lyman, a lawyer in Los Angeles.
Many lawyers also wonder whether the change affects prenuptial agreements where someone agreed to pay a specified amount of alimony in the event of divorce, on the presumption that it could be deducted.
Not necessarily everyone will be in a hurry to finalize their divorces, Vertz said.
Because people receiving alimony next year won’t have to pay taxes on it, some may figure they’re better off waiting, even if their exes complain about losing the deduction.
“Some spouses may think they have an advantage by delaying,” Vertz said. “The payer wouldn’t have a tax deduction, it’s true, but that won’t necessarily motivate the recipient to demand less.”