Alimony is a common feature of many Pennsylvania divorces. Even in marriages where both partners worked, if one spouse earned significantly more than the other, a family law judge will likely still order the higher earner to pay alimony. Currently, alimony may be deducted by the payor and must be reported as taxable income by the payee, but tax reform could change this process.
The proposed tax reform would affect divorces completed any time after Dec. 31, 2017. The ability to deduct alimony payments on the payor’s federal income taxes would be eliminated. Recipients would no longer be required to report alimony as taxable income. If passed into law, the current alimony system could undergo a drastic change.
Alimony is often key for individuals who earned less or did not work at all during their marriages. However, if the payor is no longer able to deduct these expenses, it could impact his or her ability to pay, especially if other payments — such as child support — are already in the mix. This could create a greater burden for those ordered to pay as they will not receive the added tax benefits, and could lower what the other party will receive.
Tax implications should always be taken into account during divorce proceedings, as these costs can have an effect on a person’s future financial security. Since this tax reform is still just a bill, divorcees in Pennsylvania may not have to deal with the potential ramifications. However, as family law can be complicated, it may be a good idea to consider how a divorce settlement might be impacted should the bill be passed into law.
Source: Forbes, “How Tax Reform Could Radically Change Divorce“, Nov. 9, 2017