Tax Bill Impact On Divorce And Separation Settlements: Paying Spousal Maintenance Lost Its Tax Advantage

By: Washington State Family Law Lawyer Dimitra S. Scott

For the past 75 years, a party who pays Spousal Maintenance/Alimony received the benefit of a tax deductible expense, and the party receiving spousal maintenance/alimony had the burden of paying income tax on the maintenance received. The tax consequences will change dramatically effective January 1, 2019.

Under the new Tax Plan, for all divorce decrees and separation agreements executed after December 31, 2018, spousal maintenance/alimony payments are NOT a tax deductible expense. Such maintenance/alimony payments are treated as tax neutral, like child support is today (e.g., neither a deductible expense to the parent who pays, nor income to a parent who receives payment).

In divorce and separation settlements, the deductibility of spousal maintenance/alimony was often viewed as a benefit to encourage a party to agree to pay support. For those cases currently pending, parties likely have sufficient time to resolve the matter before December 31, 2018. Cases that are filed after the new year will require timely attention to meet this looming deadline. Parties contemplating divorce or separation should consider seeking legal advice now.

The impact of this change on divorce proceedings and settlement discussions will be an evolving topic. Parties will benefit from the assistance of capable, creative legal counsel.

The full text of the provision can be found under Section 11051 “Repeal of Deduction for Alimony Payments.”

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