The tax laws regarding alimony are about to change in a huge way. Right now, as the law stands, alimony is a deduction to the payor and is income to the recipient but only if your Decree of Divorce is signed by the Court BEFORE Jan. 1, 2019! Because of the new Tax Cuts and Jobs Act (TCJA), starting Jan 1, 2019, alimony will no longer be a deduction to the payor and will not be taxable income to the receiver. THIS IS A BIG CHANGE. There are some exceptions to this found in the statue, but largely this will apply across the board including in UTAH.
Why this change? Simple, it provides more tax money to the government. By taxing the payor, the tax rate will be higher than if that money is given to the recipient and then taxed at the recipient’s lower tax rate. If payor makes $250,000, he is taxed at 35% of $250,000.00. And then he writes a check to his Ex. In the old structure, the payor made $250,000 but deducted his $100,000 of payments to his Ex and she was taxed at the tax bracket for $100,000.00. In addition, both had the opportunity to make additional deductions against that income. Overall, the government received less in taxes under the prior-to-2019 structure.
It is possible that courts will respond to the new statute by making alimony awards lower, because the judges will have to consider that the payor is paying all the taxes on that money, but it could take quite a while to see how all of this works and how the courts handle it. There is no guarantee that the courts will adjust alimony awards accordingly. Therefore, if a potential client believes there is a chance he or she will be paying alimony, because he or she has a larger income than the other spouse, I would recommend filing that divorce as soon as possible. Your attorney will need to work hard to make sure that the entire case can be settled and signed by the judge by December 31, 2018!