Tax Changes and the Deadline for Finalizing Your Divorce

You may already know that the Tax Cuts and Jobs Act (TCJA), the tax bill that was passed about a year ago, changes the way in which spouses who pay and receive alimony (or spousal maintenance) after a divorce, as an article in The New York Times explains. However, while much of the law already has taken effect, those changes to alimony and taxes actually will not take effect until January 1, 2019. The tax law will not change the way in which all people who are currently divorced and paying alimony make deductions on their taxes. Instead, the tax bill will only result in changes for couples for whom the divorce is finalized, or possibly modified, on or after January 1, 2019.

As such, anyone whose divorce is finalized by December 31, 2018 will still use the old method for paying taxes with regard to alimony, and any divorce finalized after that date will use the new method. An experienced Michigan divorce attorney can provide you with more information about filing for divorce and getting your divorce finalized.

Why do the Tax Law Changes Matter So Close to the End of the Year?

Why is all of this important to revisit now? Most importantly, it serves as a reminder to Michigan residents who are in the process of getting divorced or are considering filing that they will need to have their divorce finalized by December 31, 2018 if they want to use the old system for taxes and alimony. Married couples who have not yet filed for divorce will need to use the new taxation method for alimony since divorces must have a waiting period of at least 60 days from the date of filing to finalizing the divorce.

Couples that are currently engaged in a contentious divorce should consider options for finalizing the process before the end of the year.

In sum, the date on which your divorce is finalized-either by December 31, 2018 or afterward-could have an enormous impact on your taxes if one of the parties will be paying alimony or spousal maintenance to the other.

Details of the Tax Law Changes

For any divorces that have already been finalized, or for any finalized by December 31, 2018, this is how taxes work with regard to alimony: The payor spouse (the person making alimony payments) can deduct those alimony payments from his or her income prior to paying taxes, while the payee spouse (the person receiving the alimony payments) is required to count that money as part of his or her income and to pay taxes on it.

For divorces finalized after December 31, 2018 (in other words, on January 1, 2019 and afterward), the tax method switches. The payor spouse will have to pay taxes on alimony payments, while the payee spouse will not have to count that money as income and will not have to pay taxes on it.

Learn More from a Michigan Divorce Lawyer

If it is important for you to have your divorce finalized by the end of the calendar year, you should speak with a Michigan divorce lawyer about your situation. Contact the Law Offices of Michael A. Robbins for more information.