When couples get divorced in Wisconsin and in other states throughout the country, it is not uncommon for the spouse who earns less money to request spousal support, also known as alimony or maintenance. Alimony is a form of financial assistance that is paid by one spouse to another.
While many couples do not have equal earning capacities, one spouse may not even have an income in some cases. In the event of a divorce, maintenance payments help to keep the spouse with less earning potential financially stable. Spouses who are required to pay alimony typically do not mind because, under current law, these payments are deductible to the payer.
Unfortunately, alimony deductions will be a thing of the past according to the new tax law spearheaded by the GOP. According to the new law, the spouse paying alimony cannot deduct it, and the spouse receiving the money no longer has to pay taxes on it.
The provision would take effect for divorce and separation agreements signed after December 31, 2018. Furthermore, the new rule wouldn’t affect anyone already paying alimony.
Divorce lawyers throughout the nation say this move could make ending marriages an even lengthier and more costly process. Attorneys typically use this tax deduction as a means to reach a settlement easier—since there was more money in the pot to be able to divide. Without deduction, there is less money to go around.
Spillover implications of eliminating the alimony tax include complicating how child support is calculated. The change can also affect how assets are split up.
Additionally, the move could be particularly harmful for lower-income couples. While wealthy couples can often afford higher taxes on alimony payments, it is those spouses with limited means where a few hundred dollars per month is going to make a significant difference in their quality of life.
Prenuptial—and postnuptial—agreements generally contain clauses that outline what spousal support would look like should the divorce get divorce. However, these agreements have alimony provisions which assume the tax deduction will be in place.
If you are interested in filing for divorce in Wisconsin, schedule a consultation with our Madison family law attorney at Balisle Family Law Legal Counsel, S.C. today. Contact us for more information about the new tax law.