I recently read an article about the upcoming changes to the tax code for the deductibility of alimony. The article argued that, since alimony was not going to be deductible to the paying spouse under the new tax plan, that spouse better hurry up his process of separating from his wife and get about pursuing his divorce, like right now!
I’ve often written about the considerations leading up to the decision to file for divorce. When will you know that now is the right time? Or is it that you will wait until that straw that finally breaks the camels back to decide that now is the time. But in none of my writings have I argued that a change to the tax code would be the great motivation to call it quits, walk away, file for divorce. I certainly won’t start now.
Here’s the scenario. Under current law, if the paying spouse winds up paying $5,000 a month in alimony, he gets to deduct $60,000 for the year from his gross income. However, his former spouse has to declare that $60,000 as income and pay taxes on it. The theory is that the paying spouse has a higher tax bracket so that same $60,000 is taxed at a lower rate when taxed against the receiving spouse and therefore the family collectively winds up paying less taxes.
Now, under the incoming law, the paying spouse gets no deduction. The $60,000 will now come from his net, not gross income. He is taxed on that $60,000 in his higher bracket. The receiving spouse is not taxed at all. Thanks to the new tax plan, the paying spouse’s taxes just went up considerably and the money this family had available through tax planning is now going to the federal government, or, more specifically, to the people and companies who received the recent 1.5 trillion dollar tax gift. In our example, this family is approximately $10,000 poorer so that others in greater favor with the powers that be can party more hardy.
But back to the peculiar issue. Even with the tax changes, is that a decent motivation to divorce now? If you were having breakfast with your spouse and all was well enough to do the same the next morning, how much sense does it make to declare over your coffee one morning, “Oh Lord, Bess, the tax code has changed. Now surely we must divorce!” Who does that?
From a family law attorney’s perspective, the fact that the less-than-needy are getting $10,000 more of your hard-earned dollars not withstanding, the problem is easy enough to solve. If wife is not going to be taxed on the $60,000, she no longer needs $60,000 because she doesn’t need the whole sum to afford the taxes. Perhaps $47,500 will do. Husband gets to keep the $12,500 difference, though not really because he will pay that and more in taxes. Both parties are a little worse off than they would have been under the present code, but the nation has its priorities, you know.
So, even if you are tempted by it, don’t rush right out to get a divorce just because the tax laws are changing. Let the catalyst for divorce be about something more substantial such as, for him, the way he chews or where he throws his dirty underwear or even who he’s sleeping with. Or for her, let it be because of her grating voice or because of her lack of interest in controlling her spending or because of who she’s sleeping with (at which point, she’s not getting alimony anyway).
But, for God’s sake, don’t ever let it be over taxes.