Alimony and Tax Reform, Questions Arise

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One of the potential changes baked into the tome of tax reform is changing the way in which alimony is taxed. Currently, alimony is a tax deduction to the spousing paying alimony and taxable to the recipient. The person paying alimony is typically in a higher tax bracket so this is a significant benefit to them. (These payments frequently bring them into a lower tax bracket.) The recipient pays taxes on the alimony as if it were regular earned income.

What the new tax bill may do, is change the rules making alimony fully taxable income to the payor and is now tax free to the person receiving the alimony. Right now, the language states that this will not impact agreements that are already in place.

However if you are still at the negotiating table, how this will affect you? If you are separated in South Carolina, have a signed separation agreement and are waiting out the year of separation is that agreement still binding? Are you grandfathered into the previous tax rules? Or didyou negotiate something based on previous guidelines and now it has changed and if that is the case, are you stuck?

I am very interested in your thoughts on this matter and what the motivation was to make this change, as this is a tremendous shift.