If you are considering divorce, you should know the new tax laws may have an impact on your finances, directly related to divorce and alimony. The new tax laws specifically address alimony, in a manner unfavorable to those who pay alimony. Currently, the IRS deducts the amount of money someone pays for alimony from the amount of taxable income. In other words, if someone makes $100,000 per year, and pays $20,000 in alimony, their taxable income is reduced to $80,000. The possible benefits to alimony payors are twofold: first, by reducing the amount of taxable income, this can reduce the applicable tax bracket; second, because the alimony payments are not taxable income, the payor saves money in taxes not paid.
The new tax laws include various changes. For divorcing couples specifically, the new tax laws impact alimony payments directly. Under the new tax laws, alimony is not deducted from one’s taxable income. In other words, using our hypothetical above, if someone makes $100,000 per year, and pays $20,000 in alimony, their taxable income remains $100,000.
The good news is, if you are already paying alimony, the new tax laws won’t affect you at all. The new law, making income used for alimony taxable to the payor, doesn’t go into effect until January 1, 2019. If your divorce or separation has been filed by December 31, 2018, there are no new tax consequences related to alimony for you.
Understanding Types of Alimony Awards
In Florida, courts may consider and award four different types of alimony. These include the following:
- Bridge the gap alimony assists a party transitioning from marriage to single life. This type of alimony is for short-term needs and may not exceed two years in duration;
- Rehabilitative alimony, awarded with an eye towards assisting a spouse in becoming self-supporting by either renewing skills or credentials, or obtaining skills and credentials so as to become self-sufficient;
- Durational alimony provides economic assistance for a specific period of time, not to exceed the length of the marriage. Courts award durational alimony when courts find some alimony necessary but permanent alimony appropriate; and finally,
- Permanent alimony meets the needs of the party, consistent with the lifestyle lived during the course of the marriage. Limited circumstances exist where courts consider permanent alimony appropriate.
Factors Courts Consider in Assessing Alimony
In Florida, courts consider a number of factors in determining whether alimony is appropriate, and in what amount. Courts consider:
- A married couple’s standard of living;
- The length of the marriage;
- Age, physical, and mental conditions of the parties;
- Each party’s financial resources;
- Each party’s earning capacity;
- The contribution of each party to the marriage;
- Responsibilities to minor children;
- Tax consequences of alimony;
- Sources of income; as well as
- Any other factor the court deems necessary.
If you are considering divorce, with the new tax laws looming, it is a good idea to speak to a qualified family law attorney about both current laws and future laws, and various ways to proceed. Alimony is just one of many considerations when negotiating a divorce settlement. Having an attorney knowledgeable in alimony law, and other areas of the law, is critical. At the Carolan Family Law Firm, P.A., we offer client centered family law services. Contact us at 305-358-2330 to discuss your family’s needs.