As society changes and the needs of divorcing spouses shift, some laws eventually follow. Alimony laws—for better or worse—are changing significantly to meet the needs of today’s divorcing couples, which often involve two working adults. When alimony laws were instated, women were often financially dependent on their husbands, thus creating the need for spousal support (i.e. alimony). New Jersey provides vague guidelines on determining alimony for divorcing couples. The laws governing the tax implications of alimony, however, have been fairly clear-cut. But those laws are set to change effective as of January 1, 2019.
As of now, spouses paying alimony in New Jersey are permitted to deduct alimony payments from their taxable income, and recipients must report it as taxable income. But effective January 1, 2019, paying spouses will no longer be able to deduct alimony payments from their taxable income, and recipient spouses do not have to report it as taxable income. This only applies to divorce judgments finalized after December 31, 2018, which has caused many couples who’re contemplating divorce to panic, and rightfully so.
At this point, spouses who divorce in 2018 will face a significantly different tax outcome than those who divorce after December 31, 2018. To help you make the best financial decisions in your divorce, here is a look at what the loss of the alimony tax break could mean for you.
While there is no formula for calculating alimony in New Jersey, one of the most important factors considered is the adjusted income of the paying spouse after taxes. Currently, the alimony tax break means many paying spouses have a higher income due to the deduction, which can contribute to larger alimony payments. The new alimony law will eliminate that tax deduction for paying spouses, meaning they will have less income with which to calculate alimony payments. As a result, many recipient spouses will get less in alimony. In addition, child support obligations could be lower as the obligor spouse could potentially have a lower adjusted income according to the child support guidelines.
Not surprisingly, this new law may be what many spouses need to pull the trigger and go through with the divorce they have been contemplating. Paying spouses may save money on taxes, and recipient spouses could receive a bigger payment if their divorce finalizes in 2018. In other words, both spouses can benefit if they finalize their divorce before the new law is in effect. For divorce judgments finalized in 2019 and beyond, the paying spouse will have a higher taxable income because he or she will receive fewer deductions. And the recipient spouse will have a lower taxable income, as he or she does not need to claim alimony as income. But, because the paying spouse is typically the spouse in the higher tax bracket, the government essentially collects that extra money.
If you are already planning to divorce, now is a good time to file. Those who finalize their divorce before January 1, 2019, can still take advantage of the tax break. Because many divorces can take upwards of a year, the sooner you act, the better. If you are ready to take that step to maximize the financial benefits of your divorce, you should contact a New Jersey divorce attorney with experience handling complex alimony issues to get started. Discuss your case with an attorney who can then help you file for divorce and take advantage of all the tax breaks available to you.
Do you need help with your divorce in New Jersey? If so, Williams Law Group, LLC can help. Our skilled attorneys can advise you of your options and help you get a favorable divorce judgment that protects your financial interests. Located in Short Hills, New Jersey, Williams Law Group, LLC provides compassionate and dedicated legal services to Union, Bergen, Essex, Hudson, Morris, Monmouth, and Middlesex counties, and the surrounding areas. Our knowledgeable attorneys handle divorce and family law, child custody, and child abuse/neglect cases. Call our office at (908) 810-1083, email us at firstname.lastname@example.org, or contact us through our confidential online form to schedule a consultation and ultimately get you connected with an experienced New Jersey divorce and child custody attorney.